Entertainment & Media Law Signal : Canadian Entertainment Lawyers for Licensing, Intellectual Property & New Media Matters

2011 has seen a variety of news stories about film and television tax credit incentive programs around the world.  In the summer, the Economist reported that many US states were ending their tax credit programs ("Unilateral disarmament"):

Arizona, Arkansas, Idaho, Kansas, Maine, New Jersey and Washington have recently ended, suspended or shrunk their programmes. Many others, struggling with budget deficits, are considering doing the same, investing the money in something permanent or even leaving it to taxpayers. “2010 will likely stand as the peak year,” thinks Mr Henchman.

But where some US states are declining to tread, other jurisdictions are continuing to venture:

UK Extends Movie Tax Break Until 2015

Prime Minister David Cameron has announced that film tax relief will be extended for four more years until the end of December 2015. It had been due to expire March next year.

It is worth emphasizing that the UK has extended its film and TV tax incentive program at the same time that the government is in the midst of enormous budget cuts in other areas of government spending.

Closer to home, the province of New Brunswick, after announcing the end of its incentive program earlier this year, has now indicated that film and TV projects will continue to receive funding, though via different delivery mechanisms:

N.B. filmmakers welcome new funding

Filmmakers in New Brunswick are welcoming a new funding application process launched by the provincial government on Tuesday, after the film tax credit was axed in March.

New Brunswick will provide as much as 25 to 30 per cent of eligible expenditures incurred in the province, depending upon the type of project, said Wellness, Culture and Sport Minister Trevor Holder.

While it's dangerous to draw conclusions from such disparate experiences, it's worth noting that tax credit incentive programs appear to be in the process of being retained in jurisdictions where they have a long history (reflecting a long-term investment in anticipated industry growth and spin-off benefits) and being abandoned in jurisdictions where they were viewed as short-cuts to desirable economic activity.  In other words, tax credit programs appear to be viewed as worthwhile when they are understood as a mechanism for developing or sustaining an indigenous production industry over an extended time horizon; they are less attractive if they are intended to create, virtually overnight, an industry hub in an environment which is otherwise unpromising.

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As first reported by the CBC ("Telefilm redefines Canadian film success"), Telefilm Canada's 2011-12 Corporate Plan sets out a new "Success Index" intended to measure Telefilm's (and the Canadian film industry's) own success.  The new measure, which replaces a success metric which looked solely to share of Canadian box office gross, is comprised of commercial, cultural and industrial components:

• Commercial (60% of the total index)
  • Box-office receipts in Canada
  • Gross domestic and international sales
• Cultural (30%)
  • Number of selections and prizes at certain international festivals and events
  • Selected awards won at certain national competitive events and festivals
• Industrial (10%)
  • Ratio of private versus public funding in productions supported by Telefilm

While, from the available information, it appears this new "Success Index" will apply initially to Telefilm's own activities, it will be interesting to see whether it is applied more broadly through Telefilm's own programs which measure "success", such as the "envelope system" of the Canada Feature Film Fund, which allocates funding to producers who achieve box office success.

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A couple of months ago we reported on the Ontario Superior Court of Justice in Baglow v. Smith (2011 ONSC 5131).  The decision was noteworthy because it addressed the nature of a defamatory statement in the context of political blogging.  As I noted in the earlier post:

The court dismissed the action, primarily on the basis of a (somewhat convoluted) determination that the statement was not capable of a defamatory meaning (i.e., "not capable of damaging the reputation of the plaintiff" [para. 58]) - but, significantly, the court also stated that "another contextual factor ... would further bolster this conclusion, namely that the alleged defamatory words were made in the context of an ongoing blogging thread over the Internet".  While some have characterized the decision of Mr. Justice Annis in Baglow v Smith as consisting of a ratio (not defamatory) and obiter (took place in the context of an ongoing internet argument), I think the preferable reading is that both of the stated grounds for dismissing the action are part of the same analysis: the words are not defamatory precisely because they were uttered in the context of an online argument.

Justice Annis has taken the opportunity presented by the costs decision in the case (hat tip: Omar Ha-Redeye at slaw) to further clarify the basis for his ruling that the defendant's statement was not defamatory:

[4] My decision on the defamatory nature of the words rested principally on the ambiguous nature of the term “supporter” such that in the general context of the blogging dialogue, and without regard to the “public conversation” issue, the comment did not meet the threshold for establishing defamation.

[5] Secondly, I concluded that even were the comments defamatory, they were protected as constituting fair comment.

[6] In addition to those two bases for granting summary judgment, I found that the “public conversation” nature of the dialogue was a further ground to conclude that the comments were not defamatory. It was my view that the context of this Internet blog anticipated a reply to the comment to remove the “sting” of the libel.

With respect, I'm not sure that this is much different from what was originally described as the basis of the decision, and the statement still seems to be principally reliant on the nature of the forum in which the statement was made ("[m]y decision on the defamatory nature of the words rested principally on the ambiguous nature of the term “supporter” such that in the general context of the blogging dialogue ... the comment did not meet the threshold for establishing defamation" [emphasis added]).  It appears to remain the case that, but for the comment having been made online in the context of a political discussion on a political blog and discussion forum, the comment might have been deemed to be defamatory (imagine the statement appearing in a newspaper headline, for example - it would seem the court would take a distinctly different view of whether it was defamatory).

In any event, the decision is evidently under appeal, and so we await the Court of Appeal's views on the matter.

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The Ethics Advisory Committee of The Canadian Association of Journalists has published their Best Practices in Digital Accuracy and Corrections, which seek to provide guidance for online implementation of the CAJ's ethical principle that "When we make a mistake, we correct it promptly and ungrudgingly, and in a manner that matches the seriousness of the error."  The guidelines include some thoughtful discussion regarding how the goal of "accuracy" should be achieved in a digital environment.

The guidelines identify three applicable principles:

1.Published digital content is part of the historical record and should not be unpublished.

2. Accuracy is the foundation of media credibility.

3. Transparency demands that we are clear with audiences about changes that have been made to correct/amend or update digital content.

Further, the guidelines identify three areas in which best practices can be implemented:

• helping readers report errors
• transparency in corrections
• placement of corrections

The guidelines also discuss the interaction between legal liability and corrections (such as with respect to defamation claims - in Ontario, Section 5 of the Libel and Slander Act effects a mitigation of damages for newspaper or broadcast libels where a retraction (meeting the prescribed requirements) has been published.

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This post is part of an occasional series highlighting the type of risks which film and TV producers face and which are supposed to be covered by E&O insurance, and which aims to demonstrate that what might seem to a producer to be paranoia on the part of their lawyer is, in fact, well-founded.  These posts will point to actual lawsuits which have been filed against film/TV producers for various alleged rights infringements (whether copyright, trade-mark, right of publicity, or otherwise) - and which inform the nit-picking approach taken by producer's counsel.

Eriq Gardner at THR, Esq. reports that the owners of a private home are suing NBCUniversal and Shed Media because of the appearance of scenes shot in their home on the television series Bethenny Ever After.   Producers and their counsel are probably scratching their heads at this point: didn't they get a location agreement?  They did - but the plaintiffs in the lawsuit are claiming that the individual(s) who signed the location agreement were not the owners of the home, but merely tenants, without the authority to sign such an agreement and grant the required permissions.

Lesson? Conduct a title search to determine who is registered as the owner of the property which you'd like to use, and make sure that person (or someone who demonstrates that they have authority to sign on their behalf) signs your location agreement. (For other Signal thoughts on location agreements, see So You Want Your House to be Famous? Pitfalls of Location Agreements.)

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The Osgoode Hall Law School Entertainment & Sports Law Association has launched its entertainment and sports law blog (hat tip: IPilogue).  We wish them a hearty welcome to the blogosphere!

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Two recent court decisions (one Canadian, one American) serve as useful reminders that binding contracts and assignments of rights can be created via exchanges of emails almost as easily as they can be created by "written" documents.  In the entertainment industries, which sometimes exhibit fast-moving and casual interactions in which the intention of the parties to create binding contractual commitments is not always clear, it is worth being cognizant about the fact that email communications can bind you to a deal.

As Mark Weisleder notes in the Toronto Star (Can You Sell Your Home by Email?), a recent court decision in New Brunswick has held that a binding contract for the sale of real property (in this case a condominium) can be created via email exchange (it should be noted that leave to appeal has been granted by the Court of Appeal of New Brunswick).

In the United States, the Court of Appeals for the 11th Circuit (Hermosilla v The Coca-Cola Company) has confirmed that copyright can be transferred by exchanged emails which constitute a contract.  In Hermosilla, it was held that copyright in Spanish lyrics crafted by the plaintiff had been transferred to the defendant because the exchanged emails constituted a binding agreement, even though the parties intended to enter into a long-form written contract but never actually did so. (The Property, Intangible blog has a nice overview of the Hermosilla case - hat tip: Clancco)

Students of Canadian copyright law might query whether these decisions are of relevance to Canadian copyright questions - doesn't Section 13(4) of the Copyright Act (Canada) require transfers of copyright to be "in writing"? The Act states that "no assignment or grant is valid unless it is in writing signed by the owner of the right in respect of which the assignment or grant is made". The question of relevance will be answered by reference to provincial/territorial legislation: in Ontario, for example, the Electronic Commerce Act stipulates that "a legal requirement that information or a document be in writing is satisfied by information or a document that is in electronic form if it is accessible so as to be usable for subsequent reference" (Section 5) and also clarifies that "a contract is not invalid or unenforceable by reason only of being in electronic form" (Section 19(3)).

Exchanging emails is often useful because it can assist in providing a documentary record of discussions between the parties - but parties should be careful not to inadvertently create a binding contract (whether or not involving a transfer of copyright).

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Selected commentary and information on Bill C-11 (The Copyright Modernization Act):

• Hansard for the October 18, 2011 discussion in the House of Commons on Bill C-11
• Legislative Summary of Bill C-11
• James Gannon: 5 Steps to Understanding Bill C-11 and "Digital Locks"
• Michael Geist: Why Copyright Reform is Not the Cure for What Ails the Music Industry (which includes discussion on the statutory damages, TPM and ISP liability provisions in Bill C-11)
• James Gannon: Bill C-11 and Statutory Damages - a Guide for Canadian Copyright Law
• Andrei Mincov has created a version of the Copyright Act as it would look with Bill C-11's changes included

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Over at the Dear Rich, Nolo's IP blog, they've got a question and answer segment which is worth some attention for those advising individuals in the creative industries:

Dear Rich: I'm trying to figure out whether to ask for a lump sum payment or royalties for a deal I am making. Is there some formula for figuring out what to ask for in terms of a lump sum?

This can be a critical question for owners of rights who are granting intellectual property rights to others for exploitation by that other person (for example, the owner of rights in a graphic novel or screenplay who is being asked to grant an exclusive option or license to a film producer).  As with many questions, the question of whether to ask for a lump sum up-front payment or royalties is best answered by challenging the premises underlying the question - in short, why not choose both?

The Dear Rich Staff point out the basic pros and cons of each arrangement (and also link to this nice little summary which describes different types of royalty arrangements in more detail):

• with a lump sum, up-front payment (i.e., payable upon signing the contract), you're assured of actually receiving the money, since you generally would avoid signing without having the funds in hand (such as in the form of a certified cheque) - you also avoid having to worry about the expensive and stressful process of checking royalty statements, disputing them, auditing them, trying to get paid for discrepancies, etc.
• but with an entitlement to ongoing royalties, you get to share in the potential success of a particular property (would you rather have had $1,000,000 up-front for Avatar, or 0.5% of world box office gross?)

But describing this as an "either/or" proposition is a little too simplistic when it comes to the entertainment industries.  We can take guidance from the arrangements put in place by many of the creative guilds in the film and television industries: they generally require minimum payments up-front plus ongoing residuals entitlements (which, in the case of some Canadian guilds such as ACTRA, can be "pre-purchased" for limited periods of time by an increased up-front fee).

The combination of upfront payments (sometimes in the form of recoupable advances) and an ongoing participation right in future revenues (though usually defined down to be something less than "gross") is the norm in the entertainment industries, whether music, film/TV, publishing or videogames.  In film/TV arrangements, grantors of rights should also aim to supplement their future participation in a project by building in quasi-participations in the form of things like box office bonuses (pre-set payments payable upon the achievement of a particular box office gross), budgeted fees (such as for performing "script consultant" services) and royalties (such as per-episode royalties payable as a result of the fact that the episode was produced, irrespective of commercial success) and agreements to engage (such as a commitment on the part of the producer to engage the grantor as the writer of a certain number of episodes for a television series).

Ultimately, the answer to "how am I going to get paid?", should be a complicated one: grantors of IP rights should be aiming to contractually enshrine multiple forms of revenue participation, so as to ensure both up-front payments and ongoing participations if their property achieves commercial success.

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Colleague Maxime Gagné attended the 2011 Montreal International Games Summit, met journalist Peter Nowak, and the result was an interview with Maxime which produced this in-depth discussion about videogames, EULAs and copyright issues.  A sample:

The obvious question is, how enforceable are end user license agreements (EULA) given that virtually no one reads them?

I agree with you, but there are ways to make them enforceable. One of the ways that I personally favour are the summary statements of the rights and obligations of players. Twitter, even though it’s not a game, has an interesting example of this. If you go on the Twitter website, even though they have a full-length license agreement, they have a summary that tells users in clear language what they’re allowed to do and what they’re not allowed to do. Often times, even though that’s being followed by a very long license agreement, if the basic principles are made clear to the end user right off the bat, then you have a much greater chance of having an enforceable EULA. I always say to my clients, if it’s important to you, make it clear and summarize it.

Also, it looks simply but often what you’ll see is that the EULA will pop up on the screen and you already have the “I agree” button even though there are 77 pages that you don’t have to read to click it. If at the very least you can demonstrate that the player had to go through the entire license before clicking “I agree,” in most circumstances it will be enforceable. That being said, there are rules in respect to unconscionable contracts that are unfair to the user. Within the frame of mind that most EULA are consumer contracts, courts will tend to favour consumers over developers in the interpretation of those EULAs.

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