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«International Motion Picture Law: Finance, Distribution, and Intellectual Property Date: Tuesday, 25 June 2002 Time: 3:00 - 4:30 p.m. Venue: IPD ...»

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PIERCE — GORMAN LLP

International Motion Picture Law:

Finance, Distribution, and Intellectual Property

Date: Tuesday, 25 June 2002

Time: 3:00 - 4:30 p.m.

Venue: IPD Function Room (Room 2501)

Intellectual Property Department

25/F, Wu Chung House

213 Queen’s Road East

Wanchai

Hong Kong

Speaker: Patrick J. Gorman, Esquire

patrickgorman@piercegorman.com

Pierce—Gorman LLP 9100 Wilshire Boulevard Suite 225, East Tower Beverly Hills, California 90212-3415 Telephone: (310) 274-9191 Facsimile: (310) 274-9151 PIERCEwGORMAN LLP is an entertainment law firm based in Beverly Hills, California. The firm’s practice consists of multiple areas of law that are relevant to the entertainment industry. These areas of law include securities law, corporate law, intellectual property, and employment law. All of these concentrations tend to overlap as they apply to the firm’s core business of advising client’s in the motion picture, television, and music industries worldwide.

International Motion Picture Law:

Finance, Distribution, and Intellectual Property Hong Kong

- Table of Contents - PREFACE - For Non-US Producers.............................................. iii INTRODUCTION - An Overview of the Legal Aspects of Motion Picture & TV Production... iv CHAPTER 1 - A Primer in Financing the Feature Motion Picture........................ 1 CHAPTER 2 - Bank Loans Via Pre-Sales........................................... 5 CHAPTER 3 - The Completion Bond.............................................. 8 CHAPTER 4 - Money Raising: What are “Securities Laws” and Why Do I Need Them for My Film?....................................................... 10 CHAPTER 5 - An Overview of Basic Employment Laws Affecting Production Companies in California.................................................... 13 CHAPTER 6 - Clearance Procedures & Guidelines.................................. 20 CHAPTER 7 - Fictional Characters / Real People................................... 26 CHAPTER 8 - Music in Film................................................... 30 CHAPTER 9 - The Movie Distribution Deal: Maximizing The Value................... 34

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This book has been drafted from the perspective of a California attorney and the intended consumers are California producers and production companies. Nevertheless, most of the concepts are international in scope. No matter where the motion picture is being produced there will be legal issues.

Most importantly, the completed motion picture must conform to international business standards in order for it to be eligible for international distribution.

The specifics of this discussion about American and California securities laws may not affect a production that is not raising money in the United States, but the securities laws of whatever nation in which the company is raising money must be adhered to. The employment laws discussed herein are also specific to US and California law. Although the employment laws will vary from country to country and from state to state within the United States, the producers must comply with the employment laws of those jurisdictions in which they employ crew members or talent. The chapters that discuss clearance issues and music aspects of the film are certainly broad enough in scope to apply to all films regardless of the nation of origin of the motion picture or the nation in which the producers seek international distribution. The discussion of fictional characters/ real people chapter addresses the specific American and Californian legal standards that apply to this subject, but the issues are universal.

The purpose of this book is to educate producers about the legal issues that will arise during the production of a motion picture. The most important thing on which the producer must focus is obtaining distribution for the finished motion picture. Distribution is the ultimate target for which the producer is working when producing a film; the producer can not let legal technicalities interfere with distribution of the completed motion picture and the opportunity to exploit the finished motion picture and earn revenue from it. Similarly, as with the operation of any business, the producers must be conscious of minimizing their exposure to civil liability to private parties or government bodies that could result from their conduct in the production of the motion picture.

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An Overview of the Legal Aspects of Motion Picture & TV Production This brochure is intended as an overview to introduce and familiarize the independent film producer with some basic issues, both legal and practical, that they will confront when starting a motion picture production company and when producing a motion picture. The full discussion of the motion picture production is capped with a discussion of how the television world works. The select articles and outlines that confront various legal issues are designed only as an introduction and are not intended to take the place of customized legal advice that can only be properly provided by a qualified attorney who is familiar with the facts of your situation.





Every motion picture production or television project develops with its own dynamic based on the content, the genre, the quality of the script, the talent involved, the projected budget, and the people promoting it. The energy that is amassed from the accumulation of these elements will determine whether the film gets shut down during production or whether it ends up being an Academy Award winner.

The financing stage of the film always seems to be the area in which aspiring producers take the most interest. The financing phase is the most nebulous and mysterious phase of producing. These materials discuss the nuts and bolts of the various methods of financing a motion picture.

The typical film production (even a relatively small independent film production) sprouts from the initiative of one or two individuals and overnight grows into a multimillion dollar company with scores of employees. The producer is now a “CEO” with all of the attendant liabilities and responsibilities. The producer’s responsibility in the legal aspects of the production are three-fold: First, the producer must make sure that the production company is in compliance with all applicable laws (whether local, state, federal, or international). Second, the producer must navigate the legal waters to minimize the production company’s risk and avoid all possible liability that could arise from the production company’s activities, i.e. the production of the film. Finally, after having satisfied the governmental authorities and having dodged any bullets of liability, then the producer must make sure that he has all of the legal delivery requirements that any distributor will demand before accepting the film for distribution.

The areas of law affecting a motion picture production can generally be lumped into the following basic categories: intellectual property, employment law, contracts, and often securities and lending laws.

There is a wide body of both federal and state employment laws that govern agreements between employers and employees about the employees’ conditions of employment. In addition, various

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collective bargaining agreements (such as the Screen Actors Guild, the Writers Guild of America, and the Directors Guild of America) dictate what is and is not permissible by employer producers.

Employment laws are a critical aspect of a motion picture production company since so many employer-employee relationships are created in the production of a motion picture.

Just as there are specialized employment contracts between the production company and its cast and crew, there are a variety of other business contracts, such as those with vendors, locations, unions, and distributors. Each of these various types of contracts is laced with terms of art and peculiarities.

Documenting the rights of the film’s investors will ensure that the investors fully understand the terms of their investment. Whenever the production company is raising funds from passive equity investors who invest money in the film with the hope of a financial return (as opposed to bank loan financing, for example) then the production company has to be sure to comply with federal and state securities laws.

These laws dictate how those funds are raised and usually require that certain filings be made with state and federal agencies.

Films that utilize the concept of “pre-sales” to fund the picture obtain their money from bank loan financing that accepts the “pre-sale” documents and the yet-to-be made negative as collateral. The legal documents required for completing even a simple bank loan for a film can be as extensive and complex as all of the other contracts for the film combined.

When a film is completed, it is the producer’s objective to sell or license the film to a distributor. But what is the producer actually selling? The most valuable asset that the producer is selling is the bundle of rights that make up the film. These rights are intellectual property rights and consist of the rights that the producer has to exploit the screenplay, the rights to use the names and likenesses of the actors, the rights to the music contained in the film, life story rights (if any), the rights to that unique collection of images and sound that make up the completed film, etc. Creating and recording these rights from the commencement of production will greatly enhance and expedite the producer’s ability to deliver its finished film to a distributor.

Our objective of these materials is to educate the reader to know when to ask questions. It is important for the reader to know what they don’t know. One should acquaint him or herself with laws that may affect a production in order to spot issues that might require a more in-depth legal analysis.

PIERCE—GORMAN hopes that this booklet assists you in the start of that education process.

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Introduction The worldwide hit motion picture Crouching Tiger, Hidden Dragon obtained its funding from numerous sources all over the world including studios in Hollywood, a bank in France, and distributors in Asia and elsewhere. Companies were formed in Hong Kong, Taiwan, China, and the U.S. and British Virgin Islands to funnel and collect the funds and channel them appropriately to produce the film.

The tale of how these various funds were compiled for a “death at the box office” Mandarin-language period piece is harrowing. At various times funds came and went, but in the end the producers were able to pull it all together in a complex arrangement of international deals that closed simultaneously and added up to the $15M budget required to produce the film. The co-producer and co-writer of this multiple Academy Award winning film, James Schamus, explained the skills and expertise necessary to construct such an intricate international co-production financing scheme this way: “using a telephone and begging for money - that’s what producing essentially is.”

Studio Funding

Most producers wish that a studio would just step in and finance their film. In fact, the conventional wisdom around Hollywood today is that the major studios are nothing more than financing institutions and distribution companies that are devoid of the spirit of their heyday. Most “studio” films are somehow produced outside of the studio system and very often a studio will not finance the entire budget, but may instead co-finance it with another studio or with other financing sources. Many producers try to avoid the studio system in order to retain more creative control of their product.

Screenwriters very often have their screenplays optioned by studios only to never have them produced.

Producers without A-list clout who bring projects to the studios, even after they get the project “set up” with a studio, will often be marginalized as bigger names get attached to the project. It is not unusual for the original producer who optioned the screenplay and brought it to the studio in the end to be relegated to an associate producer credit with little practical or creative influence on the producing process. In spite of these drawbacks that many independent producers explain as the reason that they do not seek to do studio deals, the one benefit is that those movies that are made by the major studios are the ones that more often make it to the big screen and experience a wide high-profile international theatrical release.

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Distributor Funding Although the studios are distributors, what we are talking about here is the international distributors and the “independent” distributors like the type that are members of the American Film Marketing Association. These distributors will sometimes invest cash into a film in exchange for certain distribution rights as well as controls over the production of the film. The producer then will enter into a deal with the distributor that sets out the terms by which the distributor will invest money into the picture and what the distributor will get in return.

Passive Equity Money

Passive equity money refers to investment money that is given to the film with no other expectation than a return on the investment. That is, the investor does not expect or demand distribution rights, creative controls, or other such prerequisites to the cash investment. Whenever passive equity investors contribute money to the production the producers must be aware of the necessity to comply with applicable securities laws. A more thorough discussion of the securities laws follows in a later chapter.

Bank Loan



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