Whether you are a content producer trying to squeeze a few extra bucks out of your movies by licensing them for Web use, or a webmaster looking to obtain content to create a new site or to expand an existing one, there are some tricky issues involved in licensing (i.e., selling rights to use) content. This month, “Legal Commentary” will explore some of the things to think about in licensing deals, and some traps for the unwary.
Copyright law, you will recall, teaches that a copyright attaches to a motion picture (or video, photograph, song, or other copyrightable material) when it becomes “fixed in a tangible medium.” That’s lawyer talk for when it becomes recorded somewhere, which could be on anything from film to a computer hard drive. The person who does the “fixing” is the author, or joint authors if there are two or more of them.
In this industry, authors – the people who actually make the movies – often give outright transfers of material to a company, either by virtue of employment (called a “work for hire”) or by agreement. The companies, such as the many DVD/VHS manufacturers in Los Angeles’ San Fernando Valley, then distribute the movies over their chosen media. With increasing frequency, content owners are licensing their content to webmasters, and that is this month’s topic.
A license to exploit a copyright can take as many forms as the parties to a licensing agreement can conjure up. But a license is different from an outright transfer, although the latter is sometimes referred to as a permanent, exclusive license. More typically, however, a license has limitations. Common license restrictions are:
•Time: Licenses usually expire because the content owner wants extra bucks for another term.
•Medium: Usually a license is limited to a particular medium; for example, a license might be limited to DVDs, or to Web use.
•Territory: A license can be restricted by territory, although the Internet makes such a restriction impossible unless it is for e-tailing.
•Exclusivity: A license can be exclusive or non-exclusive. Non-exclusive licenses obviously are not as expensive as exclusive ones.
•Derivative Works: A license may or may not permit the creation of “derivative works,” which are modifications of the original work, such as splicing out scenes, etc.
The list is virtually endless, but the above are the most significant.
Perhaps the most important factor in writing a license is how the payment terms are worded. This is a classic example of how you can get snookered if the other party to the agreement has a lawyer and you don’t (or you have one that isn’t conversant with this topic). The content provider usually wants the agreement to say that the license is granted subject to the required payments. Then, a missed payment cancels the license and the owner of the content can sue the customer for copyright infringement – including statutory damages and attorneys fees – rather than just for the amount due. The buyer of the license usually wants the license to be granted in return for the promise to make the listed payments. That way, if a check gets lost in the mail, exposure is limited to the amount of the check.
Another issue is the payment method. Video-on-Demand (“VoD”) agreements, which are rapidly gaining momentum in the industry, usually are percentage deals, whereby the content owner participates in the webmaster’s revenue stream (not profit, because then it would be too easy for the buyer of the license to “cook the books” in the cost computation). Those agreements always must include a mechanism by virtue of which the content owner can audit the webmaster’s revenue.
You also need to think about how the webmaster will use the content, or will be permitted to use it. For example, Zero Tolerance Video (“ZTV”), a skyrocketing Los Angeles DVD/VHS manufacturer, has entirely eliminated all licenses other than VoD. ZTV’s theory is that this limitation keeps the licenses easier to police; also, their prohibition against alteration of the movies (derivative works) preserves the integrity of the movies. This also prevents ZTV’s license holder from competing with it, because ZTV participates in every Web transaction. Licenses allowing webmasters to use the content in any way they want have proven to have sent pieces of it hurtling all over the Web, diminishing the value of the content. As a result, ZTV is one of the few companies that have kept their movies from “going to catalog,” meaning reducing price, although you need to have pretty good content to pull that off. If you can do it, VoD stays up, too.
A license is either exclusive or non-exclusive. If you sell an exclusive license to a movie to someone, you cannot turn around and get any more dollars out of it until the exclusive license has expired. But that is only when the exclusive license is exclusive for all media. So, for example, a company could give an exclusive Internet license to its content to one company, an exclusive North American DVD/VHS license to another, an exclusive European DVD/VHS license to another, and so on. That is a way that many producers slice up their content.
Non-exclusive licenses also have merit. They certainly have a benefit for the buyer, because they are less costly. They likewise have merit for the seller, especially in a VoD circumstance, because the content can be shopped to many Web sites, increasing royalty revenue.
Whatever your licensing deal, what you are doing is selling a bundle of rights. For example, a VoD agreement will usually be non-exclusive, Internet VoD only, for a particular title or titles, for a specified period of time and a specified royalty percentage. Typically, the agreement allows use of the packaging (the box cover) to promote the motion picture, but often does not allow use of the VoD of other than the entire motion picture, start-to-finish, ala Zero Tolerance.
There are other things to think about. For example, if the content owner is in Los Angeles and the webmaster is in Chicago, where are disputes resolved? Are they resolved under California or Illinois law? Are they settled in court, or by the profoundly more efficient means of arbitration? What if any notice is required of a claimed violation of the agreement? Does a party violating the agreement have a right to cure the violation? Or can the aggrieved party just cancel the contract? What are the content owner’s audit rights and how are they implemented? Can a prevailing party recover attorneys’ fees? What warranties are the content owner giving about the content? If the purchaser of the content is a corporation, does its owner personally guarantee payment? That is only a part of the list.
Normally, if a content owner licenses any content at all, it licenses lots of content. Accordingly, a content owner usually says “here’s the deal,” presenting a content-license agreement that was written by (one would hope) its attorney. The purchaser of the content now is at a disadvantage, first because he is usually smaller than the content owner and, second, because the providers each have had to write only one agreement, while the purchasers must review a new agreement for each content provider. Thus, unless the purchaser is very well financed, he is likely in a position comparable to a customer at a car repair shop, who invariably is presented a form to sign that has an entire page of 6-point type on the back, essentially reserving all rights of every kind to the repair shop. However, these take-it-or-leave-it contracts, called “adhesion contracts,” do vest some rights in the buyer because of the rule that adhesion contract provisions that do not fall within the reasonable expectations of the purchaser will not be enforced against him, nor will they be enforced if unduly “oppressive or unconscionable.” So if you think you are in no bargaining position, just make clear that it is a take-it-or-leave-it proposition. But read it! You may want to shine the whole deal.
Unfortunately, this (like most “Legal Commentary” articles) can only scratch the surface. Deeper digging should be done by your attorney.
Clyde DeWitt is a partner in the Los Angeles-based, national law firm of Weston, Garrou & DeWitt. He can be reached through AVN Online’s offices, at his office at 12121 Wilshire Boulevard, Suite 900, Los Angeles, CA 90025, or at [email protected]. This column does not constitute legal advice but, rather, serves to inform readers of legal news, developments in cases, and editorial comment about legal developments and trends. Readers who believe anything reported in this column might impact them should contact their personal attorneys.
