Chris Castle has collected all of the installments from his ongoing series of posts More Questions for Artists: Record Producer Agreements which covers, in fascinating detail (but readable prose!) just about everything you could possibly want to know about record producer agreements. The collected posts are an incredibly valuable resource for recording artists and the lawyers who advise them.
How much room for innovation is there in the realm of the so-called "morals clause"? A "morals clause" is a provision in a contract which stipulates that certain actions or activities undertaken in an individual's "private life" can be grounds for termination of the contract. For entertainment lawyers, these sorts of clauses most often arise in television actor or host contracts (where a producer, broadcaster or studio may want to end their association with an individual whose reputation has become toxic) and in celebrity endorsement contracts (where a manufacturer or service provider no longer wants their product or service associated with an individual who has gained public infamy).
Morals clauses have been relevant to a few different high-profile celebrity stories in the last few years: when Charlie Sheen's erratic behaviour threatened (and eventually ended) his tenure on the hit sitcome Two and a Half Men, the question of whether a morals clause in his contract would permit Warner Bros. Television to terminate his engagement was discussed (see Eriq Gardner's "Morals clause at issue in Charlie Sheen legal fight"). Similarly, whether Tiger Woods' various endorsement deals had morals clauses which were triggered by his marital infidelity was discussed in various outlets (see Morals Clauses: Tiger Woods and The Death of His Sponsorships and Will "Morals" Clauses Impact Tiger's Endorsements?).
Drew Boortz has, as usual, an insightful post on the topic in the context of celebrity endorsements in the videogame industry: Celebrity Endorsements and Morals Clauses: What To Do When Good Deals Go Bad. As Drew points out, and as I'd like to explore a bit further, morals clauses can be drafted in a variety of different fashions and so as to impose a variety of different standards on the individual who is subject to them.
As an example, here is what might be considered the most basic form of morals clause (some of these clauses are taken from Eric Goldman's drafting exercise):
Performer shall not, either while rendering such services to the producer or in his private life, be charged with or convicted of an offense [involving moral turpitude] under federal, state or local laws or ordinances.
That clause is extremely restricted in scope (and hence quite favourable to the performer/celebrity), since it requires an actual violation (or alleged violation rising to the level of the bringing of a criminal charge) of a law or regulation. If one were to include the "moral turpitude" language, that would make the clause even narrower, since only certain types of criminal activity would be caught by the restriction.
A morals clause can be expanded in scope by adding language which speaks to not just the commission of a crime, but the "bringing into disrepute" of the performer/celebrity and/or people or entities associated with him or her - using some language from Drew's post, here is an example of such language:
If at any time while Artist is rendering or obligated to render on-camera services for the program hereunder, Artist is involved in any situation or occurrence which subjects Artist to public scandal, disrepute, widespread contempt, public ridicule, [or which is widely deemed by members of the general public, to embarrass, offend, insult or denigrate individuals or groups,] or that will tend to shock, insult or offend the community or public morals or decency or prejudice the Producer in general, then Producer shall have the right, in its sole discretion, to take any action it deems appropriate, including but not limited to terminating the production of the program.
That's a relatively standard "expansive" morals clause - though I note that the portion of the clause which I have bracketed and italicized is a relatively new twist: it expands the scope of the clause to cover a situation where the performer/celebrity has made a comment (or participated in an activity) which is deemed (query how you would prove that something is "widely deemed by members of the public") to be insulting to an individual or group. In that latter category one could imagine situations where a performer/celebrity makes comments which trade on negative stereotypes of an ethnic, religious or racial group.
These sorts of "expansive" morals clauses become a bit more difficult to police - or at least the policing of them becomes more open to interpretation, since they involve not a binary question as under the "basic" morals clause (i.e., was the person charged/convicted of a crime or not?), but a qualitative assessment of whether a particular activity or "incident" is "bad" enough that it triggers the termination right. Such debates can also involve identifying the particular "community" whose sensibilities have been shocked - are we talking about a particular sub-set of consumers, viewers in a particular geographic region or some broader set of the public? Again, how would we measure whether they have, in fact, been offended?
There are two even more expansive ways to approach morals clauses. One is to expand the clause by identifying particular infringements - I'm just going to lift this language from Drew's post, since it so nicely illustrates the concept:
Artist shall never (a) provide services in an ‘adult-themed’ film or video program or perform onscreen services for any film or video program that is pornographic, involves nudity or graphic violence or contains material derogatory of any race, nationality, ethnic identity, gender or sexual orientation; (b) perform in any sexually explicit plays, musicals or stage shows (including strip tease acts); or (c) pose as a model for any pornographic or sexually suggestive publication; furthermore, Artist represents and warrants that Artist has never participated or been a part of any activity that would fall within the scope of (a), (b) or (c).
That's nice and clear: you get involved in any "adult entertainment" activities, and you're out - and we're not going to debate whether such activities constitute a "scandal" or are "shocking".
As Drew notes, drilling down on specific violations allows the entity engaging the performer/celebrity to tailor the contract so as to address any particular sensitivities of the engaging party or their audience (Drew mentions publicly advocating for a political position contrary to that held by the engaging party).
Finally, one could introduce what Taylor, Pinguelo and Cedrone call the "reverse-morals clause": a clause which allows the performer/celebrity to terminate the arrangement if the company hiring them acts in a scandalous manner (see "The Reverse-Morals Clause: The Unique Way to Save Talent's Reputation and Money in a New Era of Corporate Crimes and Scandals"). To use their illustration, if a performer/celebrity has an endorsement arrangement with a company which pulls an Enron, that performer/celebrity has an interest in preventing the company from making further use of the performer/celebrity's name and image.
For further reading on morals clause, I suggest the following:
Following up on a story we discussed earlier this year (Turmel v CBC (Dragons' Den) - Enforceability of Depiction Releases), the Supreme Court of Canada has denied leave to appeal to the plaintiff in the case of Turmel v CBC (Dragon's Den) (trial decision here: 2011 ONSC 2400; court of appeal decision here: 2011 ONCA 519). That caps what is an important decision for Canadian entertainment lawyers, as it confirms the enforceability of signed "depiction releases", particularly the enforceability of clauses which waive any right to sue for depictions which might be "disparaging, defamatory, embarrassing or of an otherwise unfavourable nature which may expose me to public ridicule, humiliation or condemnation".
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).
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):
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.
James Kosa wrote an interesting and thoughtful piece over at slaw last week: Shape-Shifting Dispute Processes: Adapting the Process to the Type of IT Dispute. In it, he discusses "alternative dispute resolution (mediation or arbitration) as a means for resolving disputes" in the context of information technology (IT) contract disputes. James raises a number of issues which entertainment practitioners would do well to consider in the context of the industries whose participants we are called on to advise. Dispute resolution clauses (or the absence thereof) in contracts can be, dangerously, viewed as "boiler plate" clauses, deserving no more attention than, say, a counterparts clause - but each contract, or at least each "type" of contract, and the relationship which is documented thereby, should be assessed for what type of dispute resolution mechanism is most appropriate.
It is not uncommon for entertainment contracts to contain arbitration clauses: particularly in the United States, the presence of multiple service providers who specialize in making available experienced arbitrators who also have an entertainment industry background make arbitration a seemingly attractive option. But as James identifies, some types of disputes may warrant different treatment:
One way to distinguish disputes is by the remedy sought by the parties. In my view, a dispute should be handled differently if the parties are looking for injunctive relief or specific performance than if the parties are merely seeking payment or some other remedy. A dispute resolution process should be flexible enough to allow the parties to select a method of dispute resolution that will provide them with the remedy they seek. To avoid additional friction when a dispute arises, I would suggest that the parties turn their minds to this issue when preparing the agreement, and carve out from a general dispute resolution clause and the convention escalation procedures any disputes that require a special remedy. Some agreements will carve out intellectual property related disputes from a mandatory ADR clause, allowing the parties to seek emergency injunctive relief. It would also be appropriate to provide such a carve-out for disputes involving a breach of confidence for the same reason. [emphasis added]
Access to the courts in case of a dispute may be useful not just for the type of remedy they can award, but also because there is a certain power of persuasion which can arise: people generally hate being sued - getting pulled into binding arbitration doesn't sound nearly so bad. It is also worth remembering that if a contract only provides for resort to the courts in the event of a dispute, the courts then serve as a "final forum" - an aggrieved party can't try to impose an arbitration or mediation process onto the dispute; conversely, if a contract provides for arbitration or mediation, a recalcitrant party can advanced claims through the courts that the arbitration/mediation is improper or otherwise deficient.
James also provides a very useful heuristic for assessing what type of dispute resolution mechanism is appropriate for a particular type of dispute. To paraphrase (and oversimplify James' great work):
Of course, in the entertainment industries (as in, I imagine, all other industries), disputes don't always co-operate and break down into agreeable chunks with pre-affixed labels: is a dispute over royalties owing more akin to a pure "contractual interpretation" dispute suitable for a judge, or would it be better to have an experienced arbitrator who understands the nuances of a vague "adjusted gross receipts" definition? (The answer may depend on which party you represent, naturally.)
A separate issue which should be canvassed is whether the particular agreement is being entered into under the auspices of a guild/union collective bargaining agreement, and whether and how any dispute resolution process under that collective bargaining agreement interfaces with the proposed resolution mechanism in a particular contract.
There are an enormous number of entertainment industry-focused materials available on dispute resolution mechanisms - here is only a sampling:
UPDATED BELOW
The Toronto Star is reporting that oral arguments in the appeal of the Turmel v CBC (Dragons' Den) decision are currently underway ("Brantford entrepreneur claims 'Dragons' defamed him"). The Turmel decisions are valuable for Canadian entertainment lawyers because they are among the few reported decisions which consider the enforceability of depiction releases for television programs.
Some background: Turmel appeared on an episode of the CBC television program Dragons' Den - a "reality TV show" which, per the Wikipedia entry, features "entrepreneurs pitching their business ideas in order to secure investment finance from a panel of venture capitalists". Turmel was unhappy with the manner in which he was depicted on the show, and sued the CBC for defamation. He actually sued twice: the first action (2010 ONSC 5318) (which we'll refer to as the Lofchik decision, after the judge hearing the case), which the plaintiff filed after the episode was first broadcast, was dismissed following the defendant's application for summary judgment; the second action (2011 ONSC 2400) (which we'll refer to as the Arrell decision), which was essentially identical to the first, wasbrought after the CBC had re-broadcast the same episode and was, as with the first action, dismissed after the defendant brought an application for summary judgment).
The plaintiff's claims were dismissed on a variety of grounds: he had failed to provide the notice required by the Libel and Slander Act (Ontario); the second action was res judicata; and, most importantly for our purposes, both the Lofchik decision and the Arrell decision held that the "consent" (or depiction release) which was signed by Turmel was binding on him and, in the words of the Arrell decision, was "a complete bar" to the lawsuit.
In addition to signing the depiction release, the plaintiff had also been given a "Contestant Guide" which set out various elements of the show. The Guide, coupled with the consent/depiction release which Turmel signed, included a number of critical clauses which buttressed the defendant's argument:
Both the Lofchik and Arrell decisions indicated that the plaintiff had been provided with the Guide prior to his participation, had been provided with the depiction release prior to his participation, told to read it carefully, given time to review it (and even to have his own lawyer review it). Also of significance was the finding in the Arrell decision that "[n]o evidence ha[d] been led that [the depiction release] was in any way unconscionable and like Justice Lofchik I find as a fact it was not" - it will be interesting to see if the issue of unconscionability is raised on appeal, since one of the lingering issues about depiction releases is whether they constitute "contracts of adhesion" (since they are effectively provided on a "take or leave it" basis, with no opportunity to negotiate terms).
The Ontario Court of Appeal decision in Turmel v CBC will be an important one in the Canadian entertainment lawyer's little corner of the legal universe: it will represent the first, to my knowledge, instance of appellate consideration in Canada of the enforceability of depiction releases. If the Court of Appeal holds the release to be unenforceable against the plaintiff, it will require some serious reassessments of contracting practices in the industry; but if the Court upholds the lower court decisions, it will provide authoritative confirmation of the general practice of relying upon signed depiction releases.
UPDATE (July 13, 2011): I have been reliably informed that the Ontario Court of Appeal has dismissed the appeal from the bench. The Court's reasons for the dismissal confirm that, because the plaintiff voluntarily appeared on the show and was given an opportunity to read the depiction release and raise any concerns about it (which he declined to do), the depiction release was not unconscionable; because the depiction release contained a waiver of any right to relief, his claims were barred. As I mentioned in the last paragraph, above, this is a positive decision for producers' counsel.
UPDATE (September 24, 2011): The Ontario Court of Appeal's decision can be found here: 2011 ONCA 519. To quote:
[1] The appellant voluntarily agreed to go on the show. In order to do so, he was required to and did sign a consent. Paragraph 27 of the consent precluded the two actions he commenced.
[2] The only issue on the appeal is whether it would be unconscionable for the court to give effect to the terms of the consent. We are of the view that it would not be unconscionable.
[3] The Contestant Guide alerted the appellant to read the consent for the detailed rules about the show. Before the taping, the appellant was given ample time to read the consent and was free to ask for more time to review it. He did not ask for more time and signed the consent without expressing any concern about its terms.
Tony Wong had an interesting article in last week's Toronto Star, the title of which gives an indication of how a reader is supposed to react to the possibility of having their house used for a film or TV project: "3 days rent for my Maple home? $13,000". A hefty fee, plus she got to have her picture taken with Whoopi Goldberg. The same savvy homeowner even managed to get some nice perks built into her contract:
She even took the extra step of stipulating in her contract that her children be part of Good Fences as extras. For a party scene filmed in her dining room, her daughter wore a gold lame dress and her two sons wore tuxedos.
Lucrative payments, brushes with celebrity, bragging rights over having your house immortalized in film - all very enticing, but what should a homeowner think about building into the "location agreement" which they are going to be asked to sign by the producers of the project? Here is a list of considerations:
There are other issues which can arise depending on the particulars of a film ("what do you mean you're going to be shooting off fireworks in the living room?") - having their lawyer review any location agreement should be a homeowner's priority.
Entering into contracts with minors in connection with entertainment-related project can be risky - many jurisdictions legislate particular rules which govern when a contract with a minor will be enforceable against that minor (for previous Signal coverage on the topic, see here), and failure to abide by those rules can imperil the contract. One area, of particular interest to entertainment lawyers, which has historically been under-analyzed is how child authors are (or should be) treated by copyright law. Where you're dealing with very young children (say, under the age of 8), the issues become even more acute: to what extent can a child that young meaningfully be said either to have engaged in an act of artistic creation or to have entered into a binding contract?
Julie Cromer Young has written "From the Mouths of Babes: Protecting Child Authors from Themselves" (112 West Virginia Law Review 431 (2010) (hat tip: Media Law Prof Blog), one of the first articles of which I'm aware that explores in detail the interface between copyright, contracts and child authors. From the abstract:
This article begins by examining the practical ability or inability of the, "infant author," to achieve and exploit the full rights of copyright, given that the Copyright Office itself seems to recognize that any rights given to infant authors are tempered by contract laws. Section II reviews the contractual doctrine of infancy and its effect upon a child author's protection under copyright law. Section III examines the specific problem of minors contracting regarding their copyrights, especially online contracts. Section IV explores the issue as currently framed, reviewing potential solutions already suggested and noting their inherent problems. Section V examines the recent decision in A.V. v. iParadigms, noting potential flaws in the court's rationale. Section VI explores some of these problems, including constitutional rights that support the creative process but which may be limited in a child's setting, and suggests a measure that Congress could take to ensure that these rights are born with the child's work and mature as quickly as rights for a work authored by an adult.
While Young is writing primarily about US law, the issues and analysis should be of interest to entertainment lawyers in all jurisdictions.
I was speaking at a conference earlier this week when the discussion turned to the issue of "pay or play" (sometimes rendered "pay-or-play") clauses in film- and TV-related contracts, particularly contracts entered into by actors or other participants in the creative process (such as directors). While everyone on the panel seemed fairly comfortable that "pay or play" has a relatively settled meaning in the film and TV industries, I thought it might be useful to review some definitions of the term which had been proposed by others.
First up, Wikipedia has a surprisingly detailed entry on the topic which includes multiple examples (under the heading "Guarantee (filmmaking)"). According to Wikipedia, "pay-or-play" is an "informal" term referring to "a term of an actor or director's contract that guarantees remuneration if, through no fault of their own, the artist is released from the contract". That seems to be broadly consistent with what many people in the industry might use, though it is a bit imprecise from a legal standpoint: I'm a little troubled by the notion that it is a "guarantee" and that the payment obligation is binding so long as "through no fault of their own" an artist is "released from the contract". A "guarantee" is actually a legal obligation imposed on a third party to perform contractual obligations if the party whose performance is being guaranteed fails to perform; I can't meaningfully guarantee my own obligations, only someone else can. A contract can have both a pay-or-play clause and be guaranteed - but a pay-or-play clause isn't itself a guarantee. The phrase "through no fault of their own" seems a little too narrow (i.e., if I'm acting for the producer I think there are other situations in which the artist should not be paid, even if they are pay-or-play) and "released from the contract" also seems too narrow (i.e., if I'm acting for the performer, the payment obligation should be triggered even in situations where the performer is not technically "released" from the contract).
Matt Galsor at Law Law Land wrote Q&A: So...What Exactly Is "Pay or Play?", which seems like a promising source of information - and indeed the promise is fulfilled, but so well that the post is difficult to summarize. Here's an attempt: the notion of a pay-or-play obligation is impossible to understand without first appreciating that the obligation of a producer under a performer's contract will often be subject to certain conditions precedent being met (for example: the producer being able to obtain sufficient financing for the project; the performer proving that they are legally able to work (by proving citizenship or holding a visa, for example); other performers being available for the project, etc.). But performers don't want their deals (and their entitlement to payment) to be subject to conditions - they want their money whatever happens. Hence, the demand that they be made "pay or play" - which translates, as Matt writes, into
"when everyone wants to be pay or play, what they really mean or should mean is that they want no conditions to their deal so that the money will be owed whether or not the movie actually happens"
That's a bit more nuanced than the Wikipedia entry, and raises a concern: people, even individuals who have extensive industry experience, seem to be using a three word phrase to describe a concept which is pretty darn complicated (Matt spent more than 700 words explaining it). Language "shortcuts" like that tend to (or should) give lawyers the willies. People are using the phrase to mean something, but it's not always entirely clear that everybody means the same thing. Our next source seems to indicate that the "pay or play" concept is fairly slippery, and that what at first seemed to be a pretty open-and-shut entails a fairly involved analysis. Do the words "pay or play" in a contract mean that the money is owed irrespective of whether the movie is made or not? It might - particularly if the phrase "pay or play" is not qualified or modified by any other language - but then again, it might not.
John Yudelson has written a pair of informative articles which also happen to shed some light on what "pay or play" means: "Hot bodies or cool heads?: actors versus producers in feature film deals" and "The impact of actors and producers in studio-financed movie deals". In "Hot bodies..." Yudelson describes a pay-or-play deal as one "under which the studio is obliged to pay their full fee irrespective of whether a film is produced or not, depending on certain contingencies". That starts to sounds interesting: what are the "certain contingencies"? It's beginning to seem like "pay or play" is not so much a binary switch (i.e., once a deal is "pay or play" the producer is obliged to make payment come hell or high water) but instead is an obligation based on the obtaining of a number of different states of affairs.
Tony Duarte's masterful Canadian Film & Television Business & Legal Practice offers some further insight into the matter. In section 9:50.70(c), Tony states that a "pay-or-play" agreement is one in which the performer's "compensation is earned in full under any and all circumstances other than the performer's own default and, in some cases, force majeure" [emphasis added]. Now we're getting somewhere.
Duarte goes on in the notes to his Form 8 to say that "pay or play contracts allow the production company to terminate services for any reason provided that the entire fee expected by the contractor for the engagement is paid to the contractor in full ... such guarantees are generally drafted to make clear that certain named events of force majeure may excuse the production company from performing the contract or that the contract is terminated and no payment made in the event of the contractor's death or defined events of disability or default" [again, emphasis added]. Excellent - more details.
Before going further, we should also note that Duarte's comments add an important element to the analysis: "pay or play" status can be beneficial for the producer as well as the talent, since it means that the producer is able to terminate a performer for any reason whatsoever, so long as the fee is paid - that can come in handy if an actor is disruptive or even if for purely creative or personal relationship reasons the engagement simply isn't productive.
Adding together the foregoing, we can see that simply using the phrase "pay or play" in a contract, without anything further, could be a recipe for confusion: on its own, the phrase can mean anything from "payment is owed no matter what" (favourable to the performer) to "payment is owed in certain circumstances" (favourable to the producer). Because of the variation in understandings of the "meaning" of the term "pay or play", resort to contractual language will be important in the event of a dispute. As usual, precision in drafting is required. If acting as producer's counsel, I suggest that a pay or play clause should be made expressly subject to the following:
The film and TV industries are industries replete with their own terms of art - only in limited circumstances should trade "understandings" of those terms of art be relied on.
Reports about Warren Beatty's recent court victory in respect of the film and television rights to the Dick Tracy property offer a chance to reflect on the wording of reversion clauses. Grants or transfers of rights in entertainment properties are sometimes subject to a reversion clause which obliges the grantee to exploit the rights within a certain period of time or else the rights "revert" to the grantor.
In Beatty's case, though details are somewhat sparse, it appears that when he obtained the rights to the Dick Tracy property, his continued enjoyment of the rights was subject to a reversion clause: if Tracy failed to produce a new Tracy-based film or TV project by a certain deadline, the rights would revert to Tribune Co. (the owner of the underlying rights in the franchise). Beatty had produced the 1990 movie Dick Tracy, but Tribune evidently was interested in producing a new TV series. The most comprehensive coverage of the dispute between Beatty and Tribune is offered by Phil Rosenthal writing at the Chicago Tribune's Tower Ticker blog:
Beatty, who acquired rights to the character from Tribune Co.'s Tribune Media Services in 1985 and made the 1990 movie “Dick Tracy” starring himself and Madonna, filed suit in Los Angeles federal court in 2008 after Tribune Co.'s Tribune Media Services said those rights had reverted back to it. ...
Tribune Co. argued that Beatty was required to produce another Tracy television or movie project to retain the rights before a use-it-or-lose-it deadline TMS had established two years earlier. Beatty countered that, after his request to extend the rights to 2013 was denied, he had begun work on a "Tracy" special before the deadline.
Turner Classic Movies subsequently scheduled a half-hour movie chat between film critic Leonard Maltin and Tracy (as played by Beatty) discussing various portrayals of the comic detective for July 2009, but it's the special didn't run on the cable channel.
Judge Dean D. Pregerson of the Central District of California decided in Beatty's favour: Beatty's commencement of work on the half-hour movie was sufficient to meet the condition he had to satisfy in order to retain the rights. In short (although this is necessarily speculative without having the benefit of the contractual language or the court's reasons), it would appear that Beatty abided by the terms of the reversion clause, though interpreted strictly: the reversion clause obliged him to commence production on some kind of film/TV project within a certain time frame in order to retain the rights - he did so, and so retains the rights. Tribune's argument was presumably something along the lines of "to meet the condition, it couldn't just be a perfunctory production - it was supposed to be a real production - something with a big budget, something with stars, something that was intended to be theatrically released or broadcast on a major network or pay/subscription channel - not some rinky-dink 30 minute special which never even got aired".
The court was inclined to prefer Beatty's approach:
"(Tribune Co.) may be frustrated that (Beatty) has not used his rights to Dick Tracy for more profitable ends," Judge Pregerson wrote in his ruling, noting he saw nothing in the contract between the two requiring such a project to make money.
The upshot for practitioners? Reversion clauses should be drafted with precision: if the grantor of rights intends that only a "real" production will qualify to vest rights in the grantee, then the clause should expressly state a minimum budget amount that is required to be actually spent by a particular date - or require broadcast on particular outlets or theatrical release in a minimum number of theatres by a particular date or require that distribution/license agreement(s) worth a particular dollar amount (paid as a minimum guarantee) be entered into by a specific date. Other specific provisions can be envisioned, but the primary point to bear in mind is that contractual language needs to be as detailed as possible in order to ensure that performance by the parties can be measured against an express, identifiable standard.
In the inimitable Law Law Land style (no, seriously, not capable of being imitated... I've tried), Brian Berman explores, from the perspective of California law, various issues about engaging actors who are minors: Hailee Steinfeld Owns Hollywood…But Who Owns Hailee Steinfeld?
Contracting with minors often exposes one of the larger gaps between Canadian and US entertainment law practice: US producers and lawyers are sometimes startled to learn that, at least in the Province of Ontario, no statute exists which creates a pre-determined process to have a court affirm that a contract entered into with a minor is enforceable (British Columbia, by contrast, does have such a statutory procedure in place). I canvassed the differences in the law and practice in California, New York, British Columbia and Ontario in my article "A Minor Conundrum: Contracting with Minors in Canada for Film and Television Producers", originally published in 29 Hastings Comm. & Ent. L.J. 45 (2006-2007), and a copy of which is available here.
With a hat tip to Mark Fowler, I thought it worth pointing to keepyourcopyrights.org (dubbed "a resource for creators"), a rich resource of sample clauses regarding grants of copyright rights, sample contracts from a variety of entertainment industries and general advice for contracts ranging from book publishing to photography (the site is based in the United States, so Canadian visitors to the site should be cautious about drawing any conclusions without speaking to a Canadian lawyer).
One of the most interesting features of the site is its "critical review" of individual contract clauses, which includes a "thumbs up" (creator-friendly), "thumbs in the middle" (could be worse), "thumbs down" (creator-unfriendly) and "red claw of death" (incredibly overreaching). The site is a great resource for anyone who needs sample clauses or anyone who wants to think critically about the language they are being asked to sign or review.
JETLawBlog has an interesting post up about the ongoing dispute between concert impresario Michael Cohl and LiveNation (Upcoming Rolling Stones Tour Fuels the Battle between Live Nation and Michael Cohl) - of particular value is a link to the purchase agreement which memorialized the "divorce" between the parties. The agreement provides an intriguing drafting precedent in a number of respects: from the structuring of the payments and the description of the assets, to, in particular, the manner in which the non-competition provisions were handled.
Matt Galsor at Law Law Land put up a nice post on formulas for determining the purchase price when optioning a book for a film or TV project:
The purchase price for the book should be a percentage of the final, in-going budget — typically 2% to 3%. There should also be a so-called “floor” — a minimum purchase price regardless of what the final budget is. Since your director “works almost no budget on his movies,” the floor will most likely be the purchase price. Most of the time there is also a “ceiling” — a cap on the purchase price (but this only makes a difference if the budget is relatively high). A common mistake in option agreements is expressing the purchase price as a percentage of the final budget without also stating that before the final budget is determined the option may be exercised by paying the “floor” amount, and once the final budget is determined making the catch-up payment if the percentage of the budget is higher than the “floor.”
Matt goes on to discuss net profits participation - his post provides a great little formula to remember. His point which I've bolded in the quotation above is a great one and one which I've found actually only rarely gets addressed in option agreements.
If there's a single maxim by which entertainment lawyers live, it's surely "get it in writing". And if anyone needed a cautionary tale about the matter, then the recently-reported tale of the ongoing legal dispute between Lisa Kudrow (best known as Phoebe from Friends) and her former manager (hat tip: Eriq Gardner) should serve the purpose:
Three years ago, Kudrow terminated Scott Howard, a business manager who had been representing her since 1991. The two operated under an oral deal where Howard provided management services for Kudrow in return for 10 percent commission on her income.
It was a lucrative arrangement for Howard, even after the commission was trimmed to just 5 percent in 2004. At the height of Kudrow's fame, she was getting nearly $1 million an episode for Friends, plus a chunk of the "backend" earnings of the show in syndication.
After Kudrow terminated Howard in 2007, he sued for breach of contract, alleging that she had failed to make ongoing commission payments for work that he had handled. Howard sought a declaration that he was entitled to receive his commissions on all of Kudrow's continuing earnings for work done between 1991 and 1997, even after Kudrow terminated him.
I admit to being surprised when I first read that story - one of the world's highest-paid television actresses had an oral agreement with her manager? And over the course of a relationship which lasted more than fifteen years, neither of them saw fit to reduce it to writing? The entertainment industry abounds with stories about deals done "on a handshake", but the notion is enough to give a lawyer a serious case of the heebie-jeebies.
The most recent milestone in the dispute between Kudrow and her former manager is this unreported decision by the Court of Appeals of California, which is well-worth reading in detail. The dispute involves a classic example of the sort of contract term which would almost certainly not be part of an "oral agreement" - because oral agreements are by their nature simple, and the type of clause in question is by its nature complicated. The clause in question is of a type often referred to by entertainment lawyers as a "sunset clause", and is found in contracts which involve some sort of commissionable activity - generally management or agency agreements. (It is not to be confused with a "sunset clause" of the kind found in legislation which provides for a pre-determined expiration date of the legislation.) While a manager might be entitled to a 15% commission on an artist's earnings, a sunset clause would provide that once the agreement had been terminated, the manager's commission entitlement doesn't simply disappear, but rather "leverages down" over a specified period of time (the metaphor recalls the sun sinking below the horizon) - so, even if terminated, a manager might be entitled to receive 15% for the first six months after termination, 10% for the next six months, and 5% for the following six months, with 0% commission thereafter. Often a sunset clause will be worded to provide that the now-terminated agent is entitled to commission only revenues derived from work performed by the agent (so, for example, fees paid under an endorsement contract which the manager/agent was responsible for advising on or securing). Such a clause protects the interests of a manager or agent who successfully guides a career or secures employment for a client, and who could be short-changed if the client terminates the agreement and, in the absence of a sunset clause, enjoys the full fruits of the manager or agent's work without having to pay any commission (it also serves to prevent a subsequent agent from reaping the rewards of work done by a previous agent).
Alas, Kudrow and her former manager, having no written contract, lack any concrete evidence of whether they had ever agreed to a sunset clause - the former manager, obviously, argues that he was entitled to the benefit of a sunset clause. The argument presented by the manager seems to be that it is customary in the industry for management agreements to contain a sunset clause, and so, even though the agreement in this case was a verbal one, the sunset clause was implicitly understood by the parties to be part of the agreement. The trial judge in the case, agreeing with Kudrow's argument, excluded the manager's evidence about industry custom and practice regarding sunset clauses - the Court of Appeals of California reversed that exclusion, concluding that Kudrow's former manager should have been allowed to introduce such evidence.
While the decision is of course focused on California law, it provides some interesting factual background about how artists and managers conduct their business affairs, and some useful consideration of how artist/manager agreements are structured.
Recent news that the voice actor behind "Dora the Explorer" has filed suit against the producers of the show on the basis that the contract signed by the actor (who is a minor) is "unconscionable" offers a chance to review an area of entertainment law which is drastically different on either side of the Canada/US border. Diane Krausz and Jennifer Bellusci offer some thoughts on how the lawsuit has been framed in legal terms and a brief overview of New York State law on contracting with minors in "Dora Explores a Minor Platform", while Rachel Valadez explores some of the non-legal (but still important for lawyers) strategic considerations behind the handling of the lawsuit in "Lessons From the Legal Saga of Dora the Explo(rer/iter/ited". A comprehensive review of the law of contracting with minors for film and TV productions in New York, California, Ontario and British Columbia can be found in my article "A Minor Conundrum: Contracting with Minors in Canada for Film and Television Producers", originally published in 29 Hastings Comm. & Ent. L.J. 45 (2006-2007), and a copy of which is available here.
When you're one of the biggest rap stars in the world, it shouldn't be surprising to find news of one of your recent court victories splashed all over the mainstream news; when that court victory prompts reactions like "staggering", no one should be shocked to see major news stories about the court decision being carried by major outlets all over the world (a sampling of coverage: the Toronto Star; the Los Angeles Times; the Wall Street Journal). And so it is with the US Ninth Circuit Court of Appeals decision in the case of F.B.T. Productions et al v Aftermath Records et al (full text of the decision is available here), a court case relating to the works of Marshal B. Mathers III, otherwise known as Eminem. (For ease of reference in the following discussion I'm going to use the term "artist" and "label" to refer to the plaintiffs (FBT et al) and the defendants (Aftermath, et al), respectively, even though, technically, the plaintiffs in this case weren't necessarily limited to the artist and the defendants weren't limited to the record labels.)
The background to the dispute between the parties is fairly simple. Most recording contracts between an artist and a record label provide that the artist is entitled to received royalties in at least two different situations: first, where there is a "sale" of a "record" (ie the physical object on which the music is embodied); second, where there is a "license" of the rights to duplicate or make another use of the record. A "sale" is pretty straightforward: someone goes into a record store and buys a CD (the "sale" which a record contract is usually concerned with is not that sale, but the sale by the record label to a wholesaler or distributor, but set that aside for now). A "license" is little more esoteric: historically it was limited to licensing the master recording for use in a compilation or for use in a film, television show or commercial. The distinction was important because two different royalty rates are applied: for a "sale", the artist received either a percentage of the sale price or the revenues received by the label (the percentage itself generally ranged from 10-25%, the upper end being rarely accorded and reserved largely for "superstar" acts); for a "license", convention was to provide a 50% royalty. All other things being equal, then, the artist would prefer to encounter many more licenses than sales.
Enter the internet and the downloading of digital versions of songs. Is that a "sale" or a "license"? Where a track came laden with digital rights management (DRM) protections, the issue was even fuzzier: if I give you something but make it subject to a bunch of restrictions on how you can make use of it, does that seem more like I've sold something to you or more like I've licensed something to you? In this case, with reference to the Eminen tracks, the label entered into contracts enabling providers like Apple's iTunes service to make the digital tracks available for download. The label took the position that such a contract involved a "sale" (and hence was subject to the lower royalty rate) - presumably their argument was something along the lines of "Consumers are purchasing a track which they can download to their computer and in meaningful sense they then 'own' that track - that looks like selling a single LP or CD, and so should be characterized as a 'sale'". The artist took a contrary position, arguing that the iTunes contract should be treated as a license - their argument presumably went something like this: "There hasn't been a 'sale' of anything, because there hasn't been a physical object to which ownership has been transferred; all you've done is given iTunes the right to make digital copies of the song and to, in turn, authorize others, upon payment of a $0.99 fee, make their own digital copies - which looks an awful lot like a 'license'".
The US Ninth Circuit Court of Appeals has come down on the side of the plaintiffs:
[9] When the facts of this case are viewed through the lens of federal copyright law, it is all the more clear that Aftermath’s agreements with the third-party download vendors are “licenses” to use the Eminem master recordings for specific purposes authorized thereby—i.e., to create and distribute permanent downloads and mastertones—in exchange for periodic payments based on the volume of downloads, without any transfer in title of Aftermath’s copyrights to the recordings. Thus, federal copyright law supports and reinforces our conclusion that Aftermath’s agreements permitting third parties to use its sound recordings to produce and sell permanent downloads and mastertones are licenses.
One of the reasons the decision is noteworthy is that it provides further evidence that seemingly novel issues arising at the interface of copyright and technology can be, in the forum of a litigation matter, be resolved with reference to relatively simple legal principles:
[7] There is no dispute that Aftermath was at all relevant times the owner of the copyrights to the Eminem recordings at issue in this case, having obtained those rights through the recording contracts in exchange for specified royalty payments. Pursuant to its agreements with Apple and other third parties, however, Aftermath did not “sell” anything to the download distributors. The download distributors did not obtain title to the digital files. The ownership of those files remained with Aftermath, Aftermath reserved the right to regain possession of the files at any time, and Aftermath obtained recurring benefits in the form of payments based on the volume of downloads. ...
[8] Under our case law interpreting and applying the Copyright Act, too, it is well settled that where a copyright owner transfers a copy of copyrighted material, retains title, limits the uses to which the material may be put, and is compensated periodically based on the transferee’s exploitation of the material, the transaction is a license. See, e.g., Wall Data Inc. 13410 F.B.T. PRODUCTIONS v. AFTERMATH RECORDS Case: 09-56069 09/03/2010 Page: 11 of 15 ID: 7462343 DktEntry: 42-1
v. Los Angeles County Sheriff’s Dep’t, 447 F.3d 769, 785 (9th Cir. 2006); MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993); United States v. Wise, 550 F.2d 1180, 1190-91 (9th Cir. 1977); Hampton v. Paramount Pictures Corp., 279 F.2d 100, 103 (9th Cir. 1960). [emphasis added]
(As a side note, it strikes me that the Ninth Circuit's analysis of the distinction between a sale and a license of copyright is broadly consistent with how a Canadian court would approach the matter.)
What's the impact of this decision (noting that the defendants have indicated they will appeal)? As the news report indicate, views on that question range from an artist's manager who calls the decision "staggering" and says "it affects everyone" (as recounted in the Toronto Star), to much more circumspect and conservative. Ethan Smith, writing the in the WSJ, probably has it correct when he says:
while Friday’s ruling may be philosophically intriguing, in most cases, the song is likely to remain the same
In short, this decision is highly unlikely to result in a windfall for many artists. I think that's because of a few different factors: First, the decision enunciates not a principle of copyright law but a finding of contract interpretation - the contract under consideration in the Eminem case was particularly unclear as to whether, as between the parties, digital downloads should be treated as sales or licenses; such ambiguities are, for the most part, and particularly in the case of major label contracts, a thing of the past. Certainly any major label recording contract signed in the last five to eight years, which, to be clear, accounts for an awful lot of the songs which are being digitally downloaded on major commercial sites, will specifically set out that digital downloads are to be treated as sales and thus subject to the lower royalty rate.
Second, while the decision may have some bearing on older contracts, it appears (at least according to the WSJ report) that even in those cases many of the artists and record labels have amended or re-negotiated the terms of the contracts to more clearly address the treatment of digital downloads.
Finally, for contracts which don't fall into either of the foregoing categories (ie contracts which are so old that they are unclear on what royalty rate applies to digital downloads and which have not been amended or otherwise updated), those contracts are in many cases going to be for artists whose tracks don't see much activity on legitimate commercial download sites and, hence, won't have an obvious economic incentive to bring a court action seeking redress (if your song has been downloaded 300 times in the last five years, it's going to cost you a lot more just to describe the situation to your lawyer than you could possibly recover in a claim).
How much would it cost a reality show participant who revealed a secret storyline twist before the episode was broadcast? If the show in question is Survivor, the tattle-taler (tattle-teller?) could be looking at lawsuit from the producers for $5 million.
Eriq Gardner at THR, Esq. points out some of the highlights in his report on the matter: 'Survivor' Contestants Owe $5 Million If They Spill Secrets. The website reality blurred has uploaded a copy of the Survivor participant agreement (it was first uploaded back in May, then taken down due to a copyright infringement claim, but is currently back online), and offers a detailed look at its provisions, including releases for infliction of severe mental stress and the granting of an option to enter into a talent agreement following the show (which makes perfect sense: if the network is going expend capital in turning someone into a "star", they're going to want to realize on that investment).
While Survivor is a celebrated legend in the world of reality TV, readers may also be interested in the participant agreement from the 2007 series Kid Nation - a sort of ersatz Lord of the Flies.
Finally, Rachel Wilkes at Law Law Land provides some details about The Reality of Court-Themed "Reality" Shows:
To participate in the show, the parties must sign an agreement to dismiss their court claims and submit the case to binding arbitration. ... in The People’s Court the show pays any judgment, and pays both parties a nominal amount for their time regardless of the outcome.
So, not only is The People's Court not really a court, the parties aren't even obligated to pay the awards? Colour me disillusioned...
News outlets such as the Toronto Star are reporting on the publication by The Smoking Gun of Mariah Carey's 2010 concert rider:
No more Cristal Champagne and bendy straws for singer Mariah Carey. She’s all grown up now.
The concert rider for the just-turned-40 superstar excises a lot of the wretched excess and control freak details of past year
Performers' contract riders (really just an attachment to the main contract which sets out certain items in a level of technical detail which is unsuitable for the "contractese" which permeates the main contract) can address matters ranging from stage construction to the brand of bottled water to be provided backstage. The rider on one of Carey's previous tours included some amazingly detailed instructions regarding catering (a box of bendy straws, a director's chair and spinach with hot bacon dressing are just some of the highlights). The rider for the current tour, while being touted as less frivolous, is, if anything even more detailed than the previous rider, and includes its own interesting elements (such as the need for "8 tall, leafy plants").
Helpfully, The Smoking Gun has compiled an astounding collection of dozens of contract riders for acts ranging from Guns N' Roses (1 box of assorted candy bars; 1 assortment of adult magazines) to Lil Wayne (2 bottles of Grey Goose vodka; police escort) to Kenny Rogers (4 wedged lemons; 2 pounds of M&Ms).
Snopes.com offers some thoughts on the motivations for complicated riders, using the legendary (but true) Van Halen requirement of "no brown M&Ms" as an example:
The M&Ms provision was included in Van Halen's contracts not as an act of caprice, but because it served a practical purpose: to provide an easy way of determining whether the technical specifications of the contract had been thoroughly read (and complied with).
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