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					  E N T E R TA I N M E N T L AW
CMPL-524 – D    A N N Y   L   E V I N S O N
     ENTERTAINMENT LAW


                                                        TA B L E O F C O N T E N T S
     TABLE OF CONTENTS ............................................................................................................................................2
     AN INTERESTING (AND LARGELY IRRELEVANT) HISTORY OF FILMMAKING ..................................4
         INVENTION ................................................................................................................................................................4
         CONTENT ...................................................................................................................................................................4
         THE BUSINESS OF MOVIE-MAKING ...........................................................................................................................4
         SOUND .......................................................................................................................................................................5
         MOVIES & BIG BUSINESS ..........................................................................................................................................5
         DIVISION OF LABOUR ................................................................................................................................................5
         MOVIES AND THE LAW ..............................................................................................................................................5
10   CREATING THE PRODUCT....................................................................................................................................6
         INTRODUCTION ..........................................................................................................................................................6
            Parts of a Film .....................................................................................................................................................6
         PRODUCERS ...............................................................................................................................................................6
            Reality Television Producers ...............................................................................................................................7
         THE PRODUCER’S “MOVIE BOX” ...............................................................................................................................7
            Canadian Copyright Issues ..................................................................................................................................7
            Copyright Issues in United States ........................................................................................................................9
         THE GUILDS............................................................................................................................................................. 10
            The Quebec Statute on Hiring Conditions of Artists .......................................................................................... 10
20          Writers Guilds .................................................................................................................................................... 10
            Script Fees, Production Fees, Options and Right of First Refusal .................................................................... 10
            Series Bibles and Animation .............................................................................................................................. 12
            Writers Agreements ............................................................................................................................................ 12
            Peroformers Guilds ............................................................................................................................................ 12
            Performer’s Agreements .................................................................................................................................... 13
     SELLING THE PRODUCT ..................................................................................................................................... 14
         DISTRIBUTORS & SALES AGENTS ............................................................................................................................ 14
         ROLE OF THE DISTRIBUTOR ..................................................................................................................................... 15
         THE DISTRIBUTORS AGREEMENT ............................................................................................................................ 15
30          Distribution Rights ............................................................................................................................................. 15
            Distributor Approvals ........................................................................................................................................ 16
            Distributor Advance ........................................................................................................................................... 16
            Distributor Deposit ............................................................................................................................................ 16
            Mandatory Delivery ........................................................................................................................................... 16
     INSURING THE PRODUCT ................................................................................................................................... 19
         COMPLETION GUARANTEES ..................................................................................................................................... 19
           Strike Price......................................................................................................................................................... 19
           Other Limitations ............................................................................................................................................... 19
         COMPLETION AGREEMENT ...................................................................................................................................... 20
40       RE-INSURERS ........................................................................................................................................................... 20
           The Loss Payee Endorsement............................................................................................................................. 20
         ERRORS AND OMISSIONS INSURANCE ...................................................................................................................... 21
     ENTERTAINMENT ASSET BASED BANKING TRANSACTIONS ................................................................. 22
         ASSET BASED BANKING TRANSACTION OVERVIEW ................................................................................................ 22
         THE BANK’S INTERESTS .......................................................................................................................................... 23
           Security .............................................................................................................................................................. 23
           Assignment of Agreements ................................................................................................................................. 24
           Hypothec of Agreements .................................................................................................................................... 24
           Letters of Credit ................................................................................................................................................. 24


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                                                                                                                          ENTERTAINMENT LAW

50          Gap Financing ................................................................................................................................................... 24
         THE INTER-PARTY AGREEMENT .............................................................................................................................. 24
            Notice of Security ............................................................................................................................................... 25
            Ranking of Security ............................................................................................................................................ 25
            Approvals Given or Waived ............................................................................................................................... 26
            Delivery .............................................................................................................................................................. 26
            Distribution Rights & No set-offs or Defenses ................................................................................................... 26
            Arbitration.......................................................................................................................................................... 27
            Interparty Agreement Prevails ........................................................................................................................... 27
            Completion Guarantor ....................................................................................................................................... 27
60       INTER-CREDITOR AGREEMENT ................................................................................................................................ 27
         LABORATORY PLEDGE-HOLDER AGREEMENT ......................................................................................................... 27
         HYPOTHEC & COPYRIGHT MORTGAGE .................................................................................................................... 28
         UNSECURED CREDITORS.......................................................................................................................................... 28
     CANADIAN CONTENT AND CULTURE REGULATIONS .............................................................................. 29
         CULTURE AND TRADE AGREEMENTS ....................................................................................................................... 29
           Most Favoured Nations Treatment .................................................................................................................... 29
           Nations Treatment .............................................................................................................................................. 29
         FREE TRADE AGREEMENT ....................................................................................................................................... 30
         DOMESTIC LEGISLATION ......................................................................................................................................... 30
70         The Constitution Act........................................................................................................................................... 30
           The Investment Canada Act ............................................................................................................................... 30
           The Income Tax Act............................................................................................................................................ 31
           The Quebec Income Tax Act .............................................................................................................................. 33
         CANADIAN CONTENT RULES AND REGULATIONS .................................................................................................... 33
           Refundable Tax Credits ...................................................................................................................................... 33
           Canadian Audio And Visual Certification Office ............................................................................................... 34
           The Canada Customs & Revenue Agency .......................................................................................................... 36
         CANADIAN TELEVISION FUND ................................................................................................................................. 36
         QUEBEC CONTENT RULES AND CREDITS ................................................................................................................. 37
80         Domiciled and Residency ................................................................................................................................... 37
           Production at Development................................................................................................................................ 37
         ONTARIO CONTENT RULES AND CREDITS................................................................................................................ 37
         TREATY CO-PRODUCTIONS ..................................................................................................................................... 37
     AVOIDING LITIGATION ....................................................................................................................................... 39
         DOCUDRAMAS & DOCUMENTARIES ......................................................................................................................... 39
         THE CLAIMS ............................................................................................................................................................ 39
           Infringements on Expression .............................................................................................................................. 39
           Defamation or Libel & Slander .......................................................................................................................... 40
           American Defamation ........................................................................................................................................ 41
90         Invasion of Privacy ............................................................................................................................................ 42
           False Light Privacy ............................................................................................................................................ 43
           Copyright & Trademark Infringement ............................................................................................................... 44
           Implied-in-Fact Contract Claims ....................................................................................................................... 44
           Right of Publicity ............................................................................................................................................... 44
           Unfair Competition ............................................................................................................................................ 45
         THE RELEASE .......................................................................................................................................................... 45
      ENTERTAINMENT LAW


          A N I N T E R E S T I N G ( A N D L A R G E L Y I R R E L E VA N T )
                         HISTORY OF FILMMAKING
      INVENTION
      Thomas Edison invented the phonograph in the late eighteen hundreds. Edison thought it would
100   be useful if there were “motion pictures” to watch while listening to the sounds from his
      invention. William Dickson, an Edison employee, created the “kinetograph”, a large, immobile
      camera that took motion pictures, but was otherwise useless.              Europeans created the
      “cinematograph”, which was much smaller, portable and the added advantage of being able to
      project, or play back what it recorded. Great minds created great machines, but produced lousy
      films.

      CONTENT
      The first attempt to tell a story on film was “Voyage dans la Lune”, a thirteen minute short.
      From there, the Radio Corporation of America (RCA) led the way in turning radio recordings
      and transmissions into news and entertainment. RCA was called upon to develop content for
110   film. The early nineteen-hundreds witnessed the emergence of the “Nickleodeon”, the small
      movie houses that showed the short films and new reels of the day. Opportunity was born and a
      needed a business machine to govern it.

      THE BUSINESS                 OF   MOVIE-MAKING
      Edison and his team of inventors formed The Motion Picture Patent Company (“MPPC”) to
      control the film industryin America.      To display, distribute, produce or use movie-making
      equipment, a producer needed a license from the MPPC. The independent distributors competed
      with the MPPC using a multiple reel system instead of the single reel peddled by the MPPC to
      some success. In 1912, the American government intervened and broke up the MPPC under
      anti-combines legislation.

120   The real money in the film industry was in owning the movie theatres. Unfortunately, to run a
      successful theatre, one needed films to show in the theatres, and it was the distributors who held
      all the films. The theatres bought up the distributors to assure more product for their screens and
      eventually bought or formed their own production companies too. Paramount productions and
      distributions through other subsidiaries began with the “Famous Players” theatre company, but



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      was broken up by the American government for breaches of anti-combines legislation. The
      Canadian subsidiary of Paramount Studios still owns Famous Players in Canada.

      SOUND
      Music for the movies was played by a live orchestra in the movie theatre. This was expensive,
      however, so the inventors returned and developed the soundtrack. Two or three systems were
130   developed, culminating in the ability to record sound on film. Whatever process was used, it was
      expensive, which attracted a need for complex financing arrangements.

      MOVIES & BIG BUSINESS
      With sound and other factors escalating budgets, the studio system emerged, with actors,
      directors, writers and tradesmen all working under one roof in order to control cost and
      maximize production. Banks and other financiers demanded bettering financial controls and cost
      cutting measures before their money hit the table. The result was a system that produced feature
      films at a fantastic rate and an increasingly dissatisfied workforce.

      DIVISION          OF   LABOUR
      Actors were hired as contractors, but treated like employees. The studios received the benefit of
140   control of each actor’s career without the burden of conforming to labour laws.             This
      arrangement eventually dissatisfied many in the filmmaking community, resulting in the creation
      of labour associations like the Screen Actors Guild of America and United Artists, a production
      company run by artists (now owned by Metro Goldwyn Mayer (“MGM”). Today, actors have
      agents, production companies are small outfits specializing in niche markets and the lot of them
      come together in a complex knot of agreements that are the subject of this course.

      MOVIES         AND THE          LAW
      Think of the movie industry in real-estate terms (and we will throughout this summary). In real
      estate, you have land, bricks and mortar and all the interests people have in those things. In
      movies, you have something else. “Intellectual property” isn’t quite broad enough, because
150   some of it is tangible: film, sets, props, theatres and so on. On the other hand, there is the
      creativity and knowledge that is worth far more than the tangible things. For these, we protect
      them, describe them and tie them up in reams and reams of ink and paper. The entertainment
      industry, and movies in particular, are the vanguard of the knowledge economy.
      ENTERTAINMENT LAW


                               C R E AT I N G T H E P R O D U C T
      INTRODUCTION
             Movies have two elements for their creation:

                 o Labour [directors, writers, actors and technicians]

                 o Finance [Banks, distributors, completion guarantors, insurers]

             The producer, or production company, brings all of these people together to create a
              movie, which they are the owner of and responsible for.

160                                            P AR T S   OF A   FILM
             Generally speaking, the components above come together to create and pay for the
              making of a film:

                 o Screenplay – This is the story in ink and paper to be interpreted and presented
                     on a screen. It includes character descriptions, lines and instructions for how to
                     tell the story on film.

                 o Director and Technicians – The team who interprets the screenplay and
                     decides how the screenplay will appear on the screen.

                 o Actors and Sets – The people and places the director will point his cameras at
                     to record the images and sounds presented on the screen.

170              o Banks and other Financiers – The institutions that lend money to pay for the
                     creation of the film.

                 o Completion Guarantor and Insurers – Organizations who assure the financier
                     the film will be completed on its budget and will pay if it is not.

                 o Distributors – Organizations who market the movie and sell it to theatres

      PRODUCERS
             The producer is at the centre of it all and is the closest thing there is to an owner of the
              movie when it is made. Consider this description:




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                                                                             ENTERTAINMENT LAW


                                      R E A L I T Y T E L E V I S I O N P RO D UCE RS
      “For well over a decade, cable and broadcast networks, syndicators and viewers around the
180   world have looked to Jonathan Murray and Mary-Ellis Bunim and their production company for
      reality television that is ground-breaking and unforgettable. Known primarily for their hit series
      The Real World, Road Rules (MTV), Making the Band (ABC/MTV) and Love Cruise: The
      Maiden Voyage (FOX), Bunim and Murray have emerged as an industry leader that uses time-
      honored skills in dramatic story structure to turn the tales of ordinary real people into
      extraordinary television. Whether their around-the-clock cameras are documenting the lives and
      loves of the MTV generation, and beyond, or writing scripted dramas that are grounded in life
      experiences that everyone can relate to – Bunim and Murray and their talented team at
      Bunim/Murray Productions (BMP) continue to create a body of work that is, to quote their own
      company motto, “as real as it gets™.”1

190   THE PRODUCER’S “MOVIE BOX”
              It helps to think of a movie as a “box” of different things.

              The producer is holding the box and wants all of the tangible and intangible parts of the
               movie they produced to go into the box. The person who owns the box, owns the movie.

                                        C A N A DI A N C O P YRI G HT I S S UE S
              Producers usually want the copyright of their films in the box to license to distributors,
               reproduce on videocassettes to rent and sell and so on.

              In Canada, the Copyright Act provides:

                  o s. 2 “maker” means in relation to a cinematographic work the person by whom the
                      arrangements necessary for the making of the work are undertaken

200                          Does this make him the “author”?

                  o s. 5 copyrights subsist in original works

                             Is the producer the “creative spark” that creates a film? Or just the
                              philistine that brings parts together?



      1
          www.bunim-murray.com
      ENTERTAINMENT LAW


                 o s.13 (1): Subject to this Act, the author of a work shall be the first owner of the
                     copyright therein

                 o s. 13 (3): Where the author is an employee and creates something in the course of
                     their employment, the employer is the first owner of copyright

                 o s. 13 (4): copyright can be assigned, in whole or in part, divided as to territory and
                     other scopes.

210                         s.14(1) any copyright assignment from the original owner will only subsist
                             for 25 years after the death of the original owner

                 o s .2.7: copyright can be licensed exclusively

             s. 14.1(1) provides for moral rights to the original authors in Canadian works. These
              rights can be waived, but not assigned. Producers obtain releases for moral rights from
              the original authors

                 o s. 28.2(1) distortion, mutilation or other modifications or used in association with
                     a product, service, cause or institution can attract moral rights infringement

             s. 11.1 copyright in cinematographic works subsists for 50 years after the year if its
              making and publication.

220          “infringement” includes 2(a) copy and colourable imitations made in contravention of the
              act and 2(b) in relation to a performer’s performance.

                 o A producer will need the release from their actors to copy their performance

                      L ES F ILMS R ACHEL V . N I CKELL -O DEON P RODUCTIONS S.A.R.L.
      Production company is bankrupt. Creditors claiming security over a film it produced.
      Writer / Director argues the film is hers because the production company never paid her
      for the work. Contract with producer contained a “resolutory clause”, which returned the
      copyright to the writer / director in the event of non-payment. Writer / Director was not
      an employee. Principle: the writer / director is the person exercising creativity to
      attract first ownership of copyright in a film, despite the producer’s role of bringing

230   the parts together.




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                                                                               ENTERTAINMENT LAW


                                                L E F LORE V . G RASS H ARP P RODUCTI ONS I NC .
      An unsecured creditor launched a suit and received a judgment for repayment of a
      producer’s outstanding debt. The creditor discovered that the assets of the film were
      unavailable – the producer’s assets were in the hands of the secured creditors.
      Unsecured creditor discovered and executed judgment for seizure of the negatives of
      the film at the lab. Distributor (who needs the negatives to distribute the film) argues it
      has a prior security claim. Principle: the negatives and copyright are separate. The
      distributor did not convince the court that the advance had been paid, which meant the
      security was not given “for value”.

240                              C O P Y R I G HT I S S UE S   IN   U NI T E D S T A T E S
            Copyright law in the United States demands that the producer contract with everyone
             involved through “works made for hire”.

                o Title 17, s. 201(b) where there is a “work made for hire” the employer or other
                    person for whom the work is made is considered the author for purposes of this
                    law.

                           Unlike in Canada, someone’s services can be designated “work made for
                            hire” in the terms of the contract, despite not being an employee.

                       “D EEMI NG E MPLOYMENT ” - D I RECTOR ’ S L ETTER A GREEM ENT
      Section 3.1 regarding intellectual property says, “the results and proceeds of
250   Company’s and Director’s services under this agreement, shall be deemed a work-for-
      hire under United States law and a work under a contract of service made in the course
      of employment under Canadian copyright law...”                         Principle: merely “deeming”

      something a contract of employment does not make it so.                     This deeming trick works in
      the United States, but not in Canada.

            The strategy in Canada is for the producer to throw the kitchen sink at copyright.
             Assignment in Canada is usually sufficient,                but clauses regarding employment and
             other techniques under the Act are also attempted. Caution: too many clauses may
             confuse the court, persuade them you didn’t know what you were doing and not award
             any of the producer’s interests!
      ENTERTAINMENT LAW


260   THE GUILDS
                Guilds are collective bargainers for their members. With membership comes certain
                 obligations including:

                     o To compel producers to adhere / sign to the terms of the Guild membership
                         agreements

                     o To refuse work from producers who are black listed by the guild

                     o To negotiate their contracts with producers in line with the minimum terms of the
                         guild agreement

                Breaches to these agreements are the remedies available in contract law, usually
                 damages.

270                      T HE Q U E B E C S T A T U T E   ON   H I RI N G C ON D I T I O NS    OF   A RT I S T S
                “La loi sur le statut professionel et les conditions d’engagement des artistes de la scene,
                 du disque et du cinema” provides:

                     o the minimum standards for all artist contracts in Quebec;

                     o accreditation of the association that sets the minimum standards;

                     o force to bind members and non-members to the terms of the accredited association

      The Screen Actors of America Guild claims that its terms are worldwide. There are difficulties
      reconciling their terms with those of the accredited association in Quebec.

                                                      W RI T E RS G UI L DS
                The Writers Guild of Canada is the collective bargainer for writers in Canada. The
280              Screenwriters Guild of America

               S CRI PT F E E S , P R O D U C T I ON F E E S , O PT I ON S   A ND   R I G HT   OF   F I R S T R E F US A L
                Pursuant to s.A701 of the Writers Guild of Canada (“WGC”) Agreement, producers
                 purchase a license for “a specific use” and for a “specific term”

                Script Fee    – This first payment is to acquire a license to make a film with a script (i.e.
                 minimum amount owed to have a copy of the script to work from)




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                                                                          ENTERTAINMENT LAW


               Production fee    – this second payment is to distribute the film around the world (i.e. to
                be paid on the first day of principal photography pursuant to s.C1004). The script fee
                goes towards the production fee.

                   o “Distribution royalties” are tied to the production fee such that the producer is
290                    only entitled to his rights provided he continues to pay royalties. The Writers
                       Guild of America ties royalties to security.

               A producer may also purchase an option agreement, which removes the script from the
                market for a specified period, allowing the producer to consider paying a script fee.

                   o Consider Article 1397 of the Civil Code of Quebec (“CCQ”) – if the script writer
                       breaches the option agreement, all the producer is entitled to are damages.
                       Writers make poor defendants. An injunction may be persued if the producer
                       learns of dealings with a third before that transaction is completed.2

                   o When the option is exercised, rights transfer automatically to the producer without
                       the writer being paid. The assignment for registration, must be signed, which the
300                    writer may refuse to do until they are paid.

                   o Note that pursuant to pay-or-play provisions, the producer is not compelled to
                       exercise the option, merely to pay the money agreed.3

               Rights of first refusal     are also available, which allow the writer to consult the
                marketplace.

                   o Most agreements provide for 30 days negotiation. Where there is no agreement,
                       the writer may accept another offer, but no less favourable than what the right-
                       holder offered.

                   o Limited success, because someone may not pay as much for a script that will go
                       to the right holder. Furthermore, art. 1397 CCQ still operates, which is merely a
310                    recourse in damages.




      2
          See paragraphs 16 and 27 of the sample agreement at pages 34-35 of the casebook
      3
          Clause 10 of our sample agreement at page 33 of the casebook
      ENTERTAINMENT LAW


                  o A producer can seek an injunction if they are made aware of the pending
                        transaction with a third person before it is complete.

                                        SERIES BIBLES       A ND   A NI M AT I ON
              Bibles   – are reference scripts for television series. They outline the main and supporting
               characters, possible story lines and overarching tensions between the characters.

              Animation    is governed by separate documentation and rules. Notably:

                  o Copyright is assigned to the purchasing producer (the economics of animation
                        projects is that they are profitable only when merchandizing is included in the
                        budget).

320               o The declaration that animator is the first owner of copyright (the nature of the
                        animation profession is that most animators are employees).

                              Recall s.14(1) of the Copyright Act. Where copyright is assigned from the
                               first owner, it only exists for 25 years after the death of the author.

                                              W RI T E RS A GRE E M E NT S
              The Writers Agreement (“WA”) is the contract between the author’s loan-out company
               and the producer. It is supplemented or overridden by the WGCA.

                  o The loan out company (also used by actors and directors for its tax advantages in
                        the United States).

              Watch for two things with any writer’s agreement:

330               o Can the agreement bind the author? The author is a third party to this
                        agreement? (e.g. Can the loan-out company waive moral rights?).

                  o     Is the WA inconsistent with the WGCA?                The WGCA governs WA and
                        assures minimum terms for its members. Any inconsistencies may be invalid.

                                              P E R O F ORM E RS G UI L DS
              The Screen Actors Guild (“SAG”) represents most artists. The Alliance of Canadian
               Radio and Television Actors (“ACTRA”) represents Canadian talent.

              These guilds operate in many of the same ways as the writers guild.


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                                                                   ENTERTAINMENT LAW


                                   P E R F ORM E R ’ S A GRE E M E NT S
         The Performer’s Agreement (“PA”) is the contract between the performer’s loan-out
340       company and the producer. It is supplemented by the terms of the Screen Actors of
          America Guild (“SAAG”) or whatever guild they belong to.

         Watch for two things with any writer’s agreement:

             o Can the agreement bind the performer? The author is a third party to this
                 agreement? (e.g. Can the loan-out company waive moral rights?).

             o Is the PA inconsistent with the actor’s guild agreement?               The guild
                 agreement governs the PA and assures minimum terms for its members. Any
                 inconsistencies may be invalid.

             o Note the “work-for-hire” provision of the PA at clause 14. The performance itself
                 does not attract copyright. However, performers will nfrequently edit or ad-lib
350              lines, which do attract copyright. This assures that those changes do not allow
                 rights to escape from the producer’s “movie box”.
      ENTERTAINMENT LAW


                                     SELLING THE PRODUCT
              Consider the (weak) analogy with real estate: A building is worth nothing until it
               generates revenues or serves some purpose. A rental property’s value is worth the right
               to own and earn its rental revenues, not the cost of its building materials.

              Likewise, a “120 million doallar film” is the amount people paid to see it, not how much
               it cost to produce.

              The distributor is the individual or organization that gives a film value in the
               marketplace.

                                                            E XAMPLE - “T HE M E G ENER A SIAN ”
360   “Meanwhile, [amidst all the controversy of the film,] three distributors were bidding over
      the movie, five agents were clamouring to sign Lin and magazines such as Variety were
      crowning Lin as one of the top 10 filmmakers to wacth…The movie has already made
      history by being the first Asian-American film to bepicked up fro distribution at Sundance
      (by the new MTV films). It’s a ‘post-identity’ work that isn’t self-consciously Asian, angry
      or self-pitying. The film’s bad-ass rock-’n-roll feel attracted newcomer MTV Films, which
      is marketing the movie to its 18-to-34 audience, the art-house crowd, but also Asian-
      North American market. Lin said, “…MTV films didn’t even consider the Asian market.
      It is entirely new territory.” [North American Asians] are a dream demographic – if you
      can crack it.4


370   DISTRIBUTORS & SALES AGENTS
              Distributors   have distribution rights (through licenses or assignments) which allows,
               among other things, the right to make copies of license exhibitors to show and collect
               revenues from people who see the movie. The distributor receives a portion of those
               revenues after the exhibitors take their cut. The distributor pays the producer an agreed
               portion of revenues.




      4
       Allan Tong, The Me GenerAsian in “The Globe and Mail” (Toronto: Thomson Publishing,
      2003) at R3


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                                                                            ENTERTAINMENT LAW


              o Some producers are large enough to distribute their own films (e.g. Paramount,
                  AOL Time Warner).

          Sales agents    do not have rights in the film. They merely acquire the rights to sell a
           film and bind a producer with the exhibitor (i.e. they’re rather like real estate agents).
380        Money received by a sales agent belongs to the producer.

      ROLE    OF THE        DISTRIBUTOR
          The distributor ascribes value to a film based on, inter alia:

              o the author and the quality of the screenplay;

              o the actors who have committed or expressed interest in performing in the film;

              o the director who has expressed interest or committed to directing the film;

              o the history and track record of the producer;

              o the film’s budget.

          The distributor makes an informed opinion about how much the film will earn, which the
           producer can present to financiers.

390       The distributor’s motive is to see “value up on the screen”, not in the pockets of
           producers, financiers or investors.

      THE DISTRIBUTORS AGREEMENT
          The Distributors Agreement (“DA”) is an agreement for the rights to distribute a film. It
           binds the distributor to collect revenues from the exhibitor, deduct the agreed distribution
           fees and percentage of the receipts, and pay the producer the residual.

                                         D I S T RI B UT I ON R I G H T S
          In order for a distribution agreement to operate, the producer must cede “distribution
           rights” to the distributor. Distrubution rights are the rights a distributor must hold to bind
           exhibitors to their agreements. They are usually exclusive assignments of copyright,
400        limited by:

              o Time (how long the assignment will last)
      ENTERTAINMENT LAW


                  o Territory (where the assignment will be valid)

                  o Medium (the medium copies of the film can appear)

              For example, producer X assigns distributor Y, “exclusive copyright to the film “Z” for
               the purposes of distribution, for three years from the date of this agreement, in North
               America, by reel, cassette, DVD, television broadcast and Internet.”

                                           D I S T RI B UT OR A P P R O V AL S
              The distributor bases their estimation of the film’s value on the allocations in the budget
               and other elements of the producer’s plan. A film with more or less than what the
410            producer expected may not earn the same amount

              Distributors will demand “Distributor Approvals”. These are terms that compel the
               producer to seek approval for any amendments the producer wants to make to the plan
               presented to the distributor.

                                               D I S T RI B UT OR A DV A NCE
              Distribution agreements frequently include a “distributor advance” provision. Once the
               film is completed and delivered to the distributor, the distributor undertakes to hand over
               a sum of money. This sum is an advance against the receipts of the film (i.e. the
               producer will not see a dime from gross receipts of the film until this amount is paid
               back.

420                                            D I S T RI B UT OR D E P OS I T
              Where a distributor makes some money ahead of delivery, it is a distributor deposit. The
               deposit is conditional upon mandatory delivery and must be paid back if delivery is not
               made.

                                               M A ND AT OR Y D E L I V E RY
              The advance is payable only once the film is complete and delivered to the distributor in
               the manner articulated in the agreement – the distributor is not a financier, despite how
               important the advance is to the film being made.




      16
                                                                         ENTERTAINMENT LAW


               Mandatory delivery is best understood as “most of the elements”. Complete delivery is
                whatever is left over and not included in mandatory delivery. 5 Mandatory delivery has
430             two components:

                   o “physical materials” (e.g. film negatives, soundtracks etc.)

                   o “documentation” (e.g. forms assigning the distribution rights, insurance policies)

               Mandatory delivery has a fixed date with provisions for extensions and cure periods.
                Complete delivery is usually relative to mandatory delivery and may have a “by no later
                than” clause.

               Mandatory delivery is also determined by the definition of the film. Whereas in other
                agreements, the film may be defined as nothing more than the working title, the
                distribution agreement will be detailed as to what constitutes the film bargained for. For
                example:

440                o Screenplay – the film delivered must be an interpretation of the screenplay agreed
                       to by the distributor and the producer

                   o Title – the film must be called something agreed to by the parties

                   o Actors – certain actors may be required to appear in certain roles

                   o Technical Issues – the film must recorded using certain methods and media

                           C INÉGARANTIE & M OTI ON P ICTURE G UARANTORS V . H ABITAT
                                                                      D ISTRIBUTI ON
      Producer delivers what they had within the deadline set for mandatory delivery to the
      distributor. Distribution agreement provided for a “cure period”. Producer intended to
      use cure period to correct multiple defects.              The cure period effectively extended
450   delivery by “30 business days”.           Producer met cure period extension.           Distributor
      refused on grounds that mandatory delivery was not met.                 Principle: Cure periods

      should be for minor or inadvertent defects for which the guarantor had no reason to

      think that the film would be rejected.        Knowing that parts of the film would be rejected
      resulted in a breach of the mandatory delivery provision. Principle: mandatory delivery

      5
          See page 72, paragraph 9 of the sample agreement in the casebook.
      ENTERTAINMENT LAW


      is a condition precedent of the agreement.     The guarantor’s allegation that there were
      no damages sustained by the late delivery is irrelevant.


             M AYFAIR E NTERTAI NMENT I NTERNATI ONAL V . F ILM F INANCES C ANADA
      Distributor alleges that the conditions for delivery were not met. Completion Guarantor
      claims that the conditions for delivery in its agreement with the financier were met. The
460   criteria for delivery in the DA differ from those in the CG. Principle: look to the terms of
      the contract and pay attention to who is a party to the agreement.          Despite having
      mapped what mandatory delivery signified to the distributor, the distributor agreed to
      another set of criteria in adopting a “Certificate” procedure, which contained different
      criteria for madatory delivery.




      18
                                                                         ENTERTAINMENT LAW


                             INSURING THE PRODUCT
          Sadly, the producer’s say-so will often not convince financiers or distributors that a
           movie will be produced. Furthermore, some movies will get into trouble unintentionally,
           but negligently nonetheless. For these two issues, most films have:

              o A completion guarantee & completion agreement

              o Re-insurers

470           o Errors and Omissions Insurance

      COMPLETION GUARANTEES
          A Completion Guarantee “CG” is an agreement by a third party with knowledge in
           filmmaking and the financier (e.g. a bank) that the film, as described and for the budget,
           will be completed for delivery to the distributor / exhibitors according to the DA’s
           conditions.   If the film is not completed for the budget, the completion guarantor
           promises to pay any over budget costs to see that the film is completed, or repay the
           original financiers.

          A completion guarantee is formed before a dollar of financed money is spent, but does
           not come into force until all of the financed money is available to the producer (or
480        pursuant to the schedule of the contract).

                                              S T RI KE P RI CE
          The strike price is the amount the financier makes available to the producer to make their
           film. The completion guarantee does not operate until the strike price is met (i.e. if the
           producer doesn’t have the money to use, the CG does not operate).

                                          O T HE R L I M I T AT I O NS
          Completion guarantees will also not operate due to other conditions in the agreement,
           notably:

              o Failure to obtain MPAA ratings

              o Failure to deliver any implied deliverables

490           o Defects in copyright of elements in the film
      ENTERTAINMENT LAW


                    o Ensuring Canadian content requirements of the film are met

                    o Currency fluctuations

                    o Etc.6

      COMPLETION AGREEMENT
               The Completion Agreement (CA) is a contract between the producer and the completion
                guarantor. This agreement empowers the completion guarantor to step in and make sure
                the film is made if they are dissatisfied with the producer’s performance. This agreement
                is usually signed before any agreement with a financier.

               The CA identifies the items within the distributors agreement that the Completion
500             Guarantor will cover, which is often some, but not all.

               Where the completion guarantor makes payments under this agreement, the CA assures
                the guarantor security in the assets and revenues of the film so that they are reimbursed
                for the outlays.

                    o Quebec law demands that any hypothec be for a “sum certain”.

               Unlike the CG, the CA contains a detailed description of the elements of the film to be
                produced, which provide discreet triggers to interfere with production.7

      RE-INSURERS
               The re-insurers are insurance companies who insure completion guarantors.          Their
                policies will often determine which clauses to a deal are negotiable and which ones are
510             not.

                                        T HE L O S S P AY E E E N DO RS E M E NT
               A.k.a. as the “Cut through endorsement document”.

               This is an agreement between the bank and the reinsurer that where there is a breach in
                the completion guarantee, the bank can go directly to the reinsurer for indemnification,



      6
          There is a complete list of these limitations at page 84 of the casebook, left column.
      7
          A sample completion agreement is at page 96 of the casebook.


      20
                                                                         ENTERTAINMENT LAW


                instead of having to sue the completion guarantor for the proceeds of the insurance
                policy.8

      ERRORS           AND       OMISSIONS INSURANCE
               This insurance “guards against the multiplying number of statutory and common law
                actions that may be brought against those connected with the film.

520            The insurance does not cover contractual obligations, fraud or intentionally violating any
                of the claims discussed in the “Avoiding Litigation” section.

               The insurance policy is enforced on the condition that the representations and warranties
                made by the producer to the insurer are accurate. The policy is void if where these turn
                out to have been made falsely.

               Punitive damages and losses as a result of successful injunctions usually are not covered
                in the policy.




      8
          The Loss Payee Endorsement is at page 94 of the casebook
      ENTERTAINMENT LAW


                 E N T E RTA I N M E N T A S S E T B A S E D B A N K I N G
                                  TRANSACTIONS
              This type of transaction features parties and a series of agreements to meet the needs and
               allocate risk fairly among all of the parties.

                                       E XAMPLE – F INANCING “B ETTER L UCK T OMORROW ”
530   “In true indie filmmaking style, Lin maxed out 10 credit cards and shot the film guerilla-
      style, without permits or a fully paid crew, in Los Angeles , Orange county and Las
      Vegas.      To his credit, Better Luck Tomorrow looks a lot more expensive then its
      reported $200,000 (U.S.) budget.” Principle: Asset based banking transactions are
                                                      9
      not the only way to pay for production.


      ASSET BASED BANKING TRANSACTION OVERVIEW
              This type of transaction occurs in 6 steps:

                   o Producer acquires rights in a script

                   o Producer finds actors, directors and technicians, who defer some of their fees

                   o Producer finds a distributor who will risk the marketability of the film

540                o Producer finds a completion guarantor who will risk the production of the film

                   o Producer finds a bank who will give them money to make the film now

              This type of transaction usually involves four main parties:

                   o Producer

                   o Financiers (occasionally multiple financiers)

                   o Distributor (occasionally multiple for different territories)

                   o Completion Guarantor

              This transaction can also feature interested parties like:

                   o Sales agents (for gap financings)

      9
       Allan Tong, The Me GenerAsian in “The Globe and Mail” (Toronto: Thomson Publishing,
      2003) at R3


      22
                                                                          ENTERTAINMENT LAW


                    o Laboratories

550                 o Unsecured creditors

               These transactions are usually best understood from the Bank’s point of view because all
                the bank has an interest in all of the parties’ actions, unlike the others who are only
                interested in the performance of one or two of the other parties.

                                  F EATURE F ILM F I NANCI NG : A T RANSACTION A PPROACH 10
      Principle: The tension between the lender who wants the producer to concede rights

      through domestic distribution agreements and other presales and the producer’s

      desire to retain as many rights as possible for as long as possible shapes many of

      the key elements of this type of transaction.


      THE BANK’S INTERESTS
560            The bank’s interest in financing the production of a movie is to have the loan paid back.
                The bank cares that the movie is made insofar as it triggers the distributor to pay the
                distribution advance. If the completion guarantor decides to pay back the loan and turf
                the film, the bank is equally satisfied.

               On top of having a distributor who will repay the loan upon completion and a completion
                guarantor who will repay the loan prior to completion, the bank has other interests to
                exercise:

                                                       S E CU RI T Y
               The bank will demand first-order security on everything in the producer’s “movie box”:

                    o Copyright (film and screenplay)

570                 o Tangible present and future assets (especially the negatives & positives of the
                        film)

                    o Accounts Receivable (distribution agreement and film proceeds)

                               Note that the negative and copyright of a film are two different things.
                                Holding one without the other is useless for both.

      10
           Page 134 of the Casebook
      ENTERTAINMENT LAW


                              Art. 3078 CCQ holds that the law of the grantor of security is binding (i.e.
                               not the bank’s domestic law).

                                         A S S I G NM E NT   OF   A G RE E M E NT S
              The Bank might demand that the rights to collect the distribution advance be assigned to
               the bank.

580                o Art. 1641 of the CCQ says assignment is allowed provided the debtor has been
                       made aware that it owes its obligation to the assignee (i.e. the bank).

              An assignment only assures that the producer never touches the advance. The assignment
               does not assure that the advance is ever paid.

                                          H Y P OT HE C   OF    A G RE E M E NT S
              The bank can also register a hypothec against the agreement, but this is ineffective unless
               the agreement is triggered under mandatory delivery.

                                                L E T T E RS   OF   C R E DI T
              A letter of credit is a negotiable instrument from the distributor’s bank that the financier
               can draw upon (i.e. take the advance) provided a film lab receives a film meeting certain
590            specifications described in the letter of credit.

                   o This letter of credit, which is an agreement between bank, distributor and
                       distributor’s financial institution, would seem to overcome the DA, pursuant to
                       Mayfair arbitration.

                                                  G AP F I NA NCI N G
              This an outmoded form of financing where some or all of the financing for a project will
               flow from a lender discounting the estimate of the performance of the film in a territory,
               on the assurance of a sales agent. The lender accepts an equity interest in the production,
               accepting repayment out of the gross receipts of the film.

      THE INTER-PARTY AGREEMENT
600           The inter-party agreement is where the players with interests in the production will sort
               out their competing claims and reconcile discrepancies in their agreements.



      24
                                                                                  ENTERTAINMENT LAW


              The parties to an inter-party agreement are:

                   o Bank

                   o Producer

                   o Distributor

                   o Completion Guarantor

              There are eight issues to be resolved in most inter-party agreements

                                               N O T I CE   OF   S E CU RI T Y
              The bank will also clauses acknowledging assignment of the distributor’s obligation to
610            pay the advance to the bank, not the producer, pursuant to the rules on hypothecs, which
               is effective notice to everyone – a real right.11

                   o Note that tax credits, which are debts from the crown, are assignable, but
                       unenforceable12

                                              R A NK I N G   OF   S E CU RI T Y
              The bank will want its security to be given first priority over that of the other parties to
               the agreement. This is reasonable because the bank is the only party with money actually
               at stake13

                   o The parties can agree that the bank, despite having priority in its security, will not
                       exercise its security to prevent distribution of the film.

620                o The parties can also agree that the distributor will have priority for security over
                       the items they need for distribution (i.e. copyright in the film).14




      11
         An example of this clause can be found at paragraph 1 of the sample inter-party agreement on
      page 172 of the casebook.
      12
         S.67 of the Financial Administration Act and s. 220(6) and (7) of the Income Tax Act, found at
      pages 170 – 171 of the casebook.
      13
         An example of this clause can be found at paragraph 10 of the sample inter-party agreement on
      page 172 of the casebook.
      14
         These issues arose in our in-class negotiations
      ENTERTAINMENT LAW


                                           A P PR OV A L S G I V E N    OR   WAIVED
              The bank is not a fan of uncertainty as to the project being made, so it will instigate a
               discussion between the distributor, producer and completion guarantor over the method to
               resolve disagreements regarding approvals and waivers of elements necessary for the film
               to be regarded as complete.

                  o Deviations from the script and other modifications and amendments to the
                      agreement are worked out in this agreement.15

                                                         DELIVERY
630           The parties should work out concise and specific criteria for achieving delivery to satisfy
               the distribution advance and discharge the completion guarantee. All of the agreements
               should be reconciled to state what it is that is being produced, financed, insured and
               purchased.

              This section is always negotiable and contested by all of the parties to the deal.16

                  o One item of concern for the bank is the cure period. Will interest continue to run
                      while the film is being corrected? It has been delivered, but the advance hasn’t
                      been paid yet.

                  o The cure period is also important to the distributor as well, who might be planning
                      significant outlays for release on a fixed date – is time of the essence?

640                         D I S T R I B U T I ON R I G H T S & N O   S E T - O F FS O R   D E FE NS E S
              The bank and completion guarantor will demand that the distribution rights flow on the
               condition the distribution advance is paid.

              Some distribution agreements may hold that rights in the producer’s product, despite not
               conforming with madatory delivery, flow anyway through set-offs or defenses.17



      15
         Consider the use of the word “substantially” and its impact in the Mayfair case and discussed
      in the journal article at page 134 – 139 of the casebook.
      16
         An example of this kind of clause is found at paragraph 15(d) of the sample interparty
      agreement on page 175
      17
         This condition can be observed at paragraph 3 of the sample interparty agreement on page 172
      of the casebook.


      26
                                                                          ENTERTAINMENT LAW


                                                  A RB I T R AT I ON
              The parties might want to provide for an arbitration panel, which can be helpful when
               resolving a dispute that is time sensitive and an application to the courts will not return a
               verdict in time, among other reasons.18

                                    I N T E R P ART Y A GRE E M E NT P RE V AI L S
650           Now that the parties have come together and reconciled their positions, they will want the
               inter-party agreement to override any contrary clauses in the other agreements.19

                                          C O M PL E T I ON G UA R ANT O R
              The completion guarantor can be a party to the agreement, but must at least acknowledge
               their awareness of its terms in order for it to be binding on third parties. The bank is
               especially concerned that the strike price is clear and can be met by the financiers.

                  o Consider the impact deferral of payments will have on the strike price. Does the
                      budget have to reflect what the deferred payment will be and must the financier
                      provide enough to cover the deferral, or only the amount agreed to?

      INTER-CREDITOR AGREEMENT
660           The inter-creditor agreement is a contract between multiple parties lending money to the
               production. This agreement allows them to coordinate delivery of their respective loans
               to trigger the completion guarantee.

      LABORATORY PLEDGE-HOLDER AGREEMENT
              The laboratory pledge-holder agreement is a waiver of the lab’s lien on film products in
               its possession for non-payment of its fees beyond a specific amount (usually 50,000$).

              This kind of agreement is still dissatisfactory for Canadian production because there is no
               one with deep enough pockets to overcome this agreement in the event financing falls
               through. Canadian productions should seek complete waivers.



      18
         This condition can be observed at paragraphs 16 – 18 of the sample interparty agreement on
      page 176 of the casebook.
      19
         This condition can be observed at paragraph 22 of the sample interparty agreement on page
      178 of the casebook.
      ENTERTAINMENT LAW


      HYPOTHEC & COPYRIGHT MORTGAGE
670           The hypothec is registered security in Quebec and notice to the world-at-large of the
               holder’s claim against the listed assets. Each thing the hypothec is to be registered
               against must be described in the hypothec agreement

              The copyright mortgage is the common law equivalent and is subject to the same content
               requirements.

              Certain tax credits cannot be hypothecated or mortgaged.

      UNSECURED CREDITORS
              Generally speaking, unsecured creditors are not important relative to the parties to the
               inter-creditor agreement because each has obtained security for their interest against the
               assets of the film (i.e. the producer’s “movie box”).

680                                             L E F LORE V . G RASS H ARP P RODUCTI ONS I NC .
      An unsecured creditor launched a suit and received a judgment for repayment of a
      producer’s outstanding debt. The creditor discovered that the assets of the film were
      unavailable – the producer’s assets were in the hands of the secured creditors.
      Unsecured creditor discovered and executed judgment for seizure of the negatives of
      the film at the lab. Distributor (who needs the negatives to distribute the film) argues it
      has a prior security claim. Principle: security interests must be perfected to work
      ahead of other claimants.        The distributor did not convince the court that the advance
      had been paid, which meant the security was not given “for value”.


               R OTHSCHILD : P RESERVING Y OUR R IGHTS                 IN AN   E NTERTAINMENT D EAL
690   Rothschild argues that LeFlore was decided incorrectly on the contention that the
      distributor does give value for its security interest.               Principle: The distributor’s

      commitment to pay the advance is what makes bank financing available in a

      negative pick-up deal, and is therefore valuable.                This sounds a little like they are
      arguing for the importation of the civilian tradition of being able to sue on reliance of a
      promise to contract without valuable consideration (i.e. a deposit).




      28
                                                                            ENTERTAINMENT LAW


      C A N A D I A N C O N T E N T A N D C U LT U R E R E G U L AT I O N S
            We have Canadian Content rules for two reasons:

                 o Protects Canadian sovereignty

                 o Makes financing Canadian productions possible

            Americans argue that the “protection of Canadian sovereignty” M.O. is nothing more
700          than protectionism of domestic industries, which is what trade agreements are supposed
             to set aside.

                                                              C ONSULTATI ONS W I TH C ANADIANS
      “The preservation and promotion of cultural identity is a core objective for Canada in all
      international trade negotiations.        During previous trade negotiations, Canada has
      pursued this goal by negotiating cultural exemptions, or by not assuming obligations
      regarding cultural industries.


      CULTURE          AND     TRADE AGREEMENTS
            Canada has always made an exception to trade agreements regarding Canadian culture.
             Barriers to trade regarding Canadian culture are allowed because Canada never negotiates
710          them in its trade agreements.

                                M OS T F A V OU RE D N A T I O NS T RE A T M E NT
            Most Favoured Nations (“MFN”) is a group of trading partners who receive equal
             treatment, and always better treatment than non-favoured nations.

            MFN agreements presume there will be no protection for cultural industries and must be
             opted out of to apply.

                                             N AT I O NS T RE A T M E N T
            Nations Treatment (“NT”) is where trading partners offer treatment that is no less
             beneficial than the treatment they offer their nationals.

                 o Treaty co-productions often operate this way. Treaty participants can benefit from
720                  the content financing rules in Canada.
      ENTERTAINMENT LAW


              NT agreements presumet there will be protection for a country’s cultural industries and
               must be opted in to apply.

      FREE TRADE AGREEMENT
              The Canada – United States Free Trade Agreement excluded cultural industries pursuant
               to paragraph 1 of Article 2005.

              Paragraph 2 of the same article says a party (i.e. the Americans) can take retaliatory
               action of equal commercial effect in response to actions that would have been
               inconsistent with this agreement but for paragraph 1.

              The Americans interpret this provision to mean, “Would Canada have had an obligation,
730            but for this paragraph?” In other words, Canadian productions have to stay in Canada.

                   o We created tax credits for productions that meet Canadian content criteria.
                       Americans feel Canada would have had an obligation under the agreement.
                       Canada feels tax credits aren’t addressed in the agreement.

      DOMESTIC LEGISLATION
              Along with its international trade agreements, the federal government can interfere with
               film productions through multiple pieces of legislation:

                   o The Constitution Act

                   o The Investment Canada Act

                   o The Income Tax Act

740                                         T HE C ON S T I T UT I ON A C T
              The federal government’s spending power is what allows it to interfere in what is
               otherwise largely a privately regulated industry. Some provincial challenges have called
               the federal government’s interference in cultural productions infringement on provincial
               jurisdiction.

                                       T HE I NV E S T M E NT C AN AD A A C T
              The Investment Canada Act (“ICA”) sets rules and limitations on foreign ownership of
               Canadian companies.


      30
                                                                        ENTERTAINMENT LAW


            S.15 states that any business operating in cultural industries is reviewable.

            Any forced divestiture under this act must be compensated at fair market value

750         The Investment Canada Act also determines what is a “Canadian” or “Canadian
             Controlled” corporation for applying Canadian income tax credits at ss. 26 – 28.

                                             T HE S EGRAMS / U NI VERSAL S TUDI OS I NCIDENT
      Seagrams, a Canadian Controlled company purchased a controlling interest in
      Universal Studios, an American major film production company.                    Seagrams is a
      “Canadian” company pursuant to the conditions stipulated at 26 – 28 of the Investment
      Canada Act, so is it eligible for Canadian production tax credits? Principle: section 2.1
      of the Investment Canada Act allows the Minister to declare that despite conformity

      with the rules in 26 – 28, a company is not Canadian controlled.            The Minister felt that
      Universal Studios would not take its marching orders from Seagrams.

760                                        T HE I NC OM E T A X A C T
            The tax credits at ss. 125.4 and 125.5, which refund a portion of the labour expenditure.
             The credit is greater for a Canadian Film or Video Production Tax Credit or a Film
             or Video Production Services Tax Credit


                                                     T HE L OAN -O UT C OMPANY C ONUNDRUM
      In meeting the criteria at 125.4 and 125.5 for the tax credits, recall that actors are
      frequently hired through their loan-out companies.               Loan-out companies are not
      Canadian, so they can run afoul of the tax credit requirements.                        The “labour
      expenditure” is allowed for contractors who provide employment-like services (e.g. labs,
      loan-out companies), but only where their services are purchased through a taxabale
770   Canadian corporation. Principle: actors will demand to be compensated for the loss
      of the tax benefit that comes with the loan-out company.

            Draft regulation 1106 is the most important (non) provision of the Income Tax Act. It
             defines what a “Canadian” is,

                o “For the purposes of this section and paragraph (x) of class 10 in Schedule II,
                    “Canadian” means a person that is: (a) a Canadian Citizen as defined by the
      ENTERTAINMENT LAW


                      Canadian Citizenship Act. (b) a permanent resident within the meaning assigned
                      by the Immigration Act or (c) a corporation that is Canadian-controlled, as
                      determined by sections 26 to 28 of the Investment Canada Act

              The draft regulation defines what a “producer” is:

780               o Controls and is the central decision-maker

                  o Responsible for the acquisition and production of a screenplay

                  o Credited with producing the film

                             Which means a “Canadian Producer” must be able to do all of these
                              things. An American distribution company that pulls all of the strings
                              may be considered the real producer, which is important to consider when
                              drafting the inter-party agreements.

              And defines what a “Canadian Production”, which is either,

                  o A treaty co-production, or

                  o A video production by a “Canadian” and meets the six point system:

790                          Director = 2 points

                             Principal Screenwriter = 2 points

                             Lead Performer (highest remuneration) = 1 point

                             Lead Performer (next highest remuneration) = 1 point

                             Art director = 1 point

                             Director of Photography = 1 point

                             Music composer = 1 point

                             Picture Editor = 1 point

                  o Not an “excluded production”, which means:

                             Completed within 2 years of the beginning of principal photography

800                          Retaining copyright for 25 years, or in control of marketing process



      32
                                                                         ENTERTAINMENT LAW


                             Entitled to revenues from distribution outside of the country

                             Distributed by a Canadian company within Canada within 2 years of
                              production completion.

                                             C LASS E XAMPLE : T HE A MERICAN D ISTRIBUTOR
      Canadian producer arranges for financing, but comes up short. Part of his financing
      includes the Canadian production refundable tax credits, but he’s still a little short. He
      turns to an American distributor who provides an advance for more than he needs.
      Principle: an American distributor must release the rights to Canada stay within the

      draft regulation.


810                                    T HE Q UE B E C I NC OM E T A X A C T
            Section II.6.0.0.2 provides a tax credit for Quebec productions

      CANADIAN CONTENT RULES                            AND      REGULATIONS
                                         R E F UN DA B L E T A X C RE DI T S
            Tax credits are deductions against the amount of tax owed by a tax payer, until the
             amount owed is zero, after which the tax payer receives nothing.

            A refundable tax credit is a deduction against the amount of tax owed, that pays the
             taxpayer if there is no tax to be paid.

                o A producer’s film has not earned any revenues, so there is no income tax owing,
                    but the credit will be paid nonetheless if it conforms to the associated conditions.

820         There are two types of refundable tax credits in the movie industry

                o Canadian production refundable tax credits (25%)

                o Candian Service Industry tax credits (16%)

            To be eligible for the Canadian Production tax credit, a production must meet the rules of
             draft regulation 1106 of the Income Tax Act (see above).

            The tax credit is paid against expenses for labour and an expanded capital cost allowance
      ENTERTAINMENT LAW


                        C A N A D I A N A U D I O A N D V I S UAL C E RT I FI C AT I ON O F FI CE
              The Canadian Audio and Visual Certification Office (“CAVCO”) is the authority under
               the Canadian Ministry of Heritage responsible for certifying productions as eligible for
               the Refundable Production Tax Credits. In particular:

830               o Certifying a production is Canadian

                  o Estimating the qualified labour expenditure

                  o Issuing certificates.

              They do not certify international treaty co-productions.

              CAVCO’s criteria are similar to the draft regulations, but afford them more discretion
               and details. In particular, CAVCO is especially concerned with fast dealing about the
               producer CAVCO’s “guidelines” are the producer:

                  o controls & is central decision maker

                  o involved in and ultimately responsible for

                  o acquisition and/or meaningful development of the story

840               o commission of the writing of the screenplay/series bible

                  o selection, hiring and firing of key artists & creative personnel

                  o preparation, revision and final approval of the budget;

                  o all overages

                  o binding of the production company to talent and crew Ks

                  o arranging of production financing

                  o supervision of filming/taping and post-production

                  o final creative control (as per contract)

                  o production expenditures (as per contract)

                  o production bank accounts (sole and unfettered cheque signing authority)

850               o arranging of the commercial exploitation of the production



      34
                                                                     ENTERTAINMENT LAW


            Only those productions for which Canadians assume the preceding responsibilities
             recognized as Canadian film or video productions

                o Line producer & production manager functions are not sufficient in and of
                    themselves to confer producer status

                o Nevertheless, those who fill these functions, and those two whom they report,
                    must be Canadian

            CAVCO also has the following indicators for determining control of a Canadian
             production:

                o evidence that 75% or more of total budget is financed by single non-Canadian
860                 entity

                o evidence that Canadian entity does not own or control distribution and exhibition
                    rights

                o evidence that Canadian producer does not retain an effective share of net proceeds
                    equivalent to at least 25% of the value world wide excluding Canada

                o evidence producer does not have @ least right of 1st negotiation for subsequent
                    cycles of TV series, sequels & spin-offs

                o evidence that the producer does not participate in meaningful development of the
                    story

                o evidence that foreign participants may exercise undue influence

870             o 7.evidence that a foreign co. is providing the completion guarantee with standard
                    takeover rights.

                                                               O VERARCHI NG I SSUE – C ONTROL
      CAVCO must be reminded that these are only indicators. CAVCO can be persuaded
      that despite many of their indicators being met, a producer can still retain control over
      the production. A foreign distributor who arrives and provides armloads of financing for
      a production is not wresting control away from the producer when it is essentially in the
      can.
      ENTERTAINMENT LAW


                                T HE C A N A D A C US T O M S & R E V E N UE A G E NC Y
              Despite CAVCO’s importance to determining eligibility for tax credits, the CCRA is
880            ultimately responsible for interpreting s.125.4 of the Income Tax Act, which allows the
               tax credit to be made.

              There IT Bulletin can be found at page 326 of the casebook.

      C A N A D I A N T E L E V I S I O N F U N D 20
              The Canadian Television Fund (“CTF”) Is a significant source of funding for productions
               in Canada and is the only source of funding where “content” is determined by what is in
               the movie or program

              The CTF administers two funds:

                  o License Fee Program

                  o Equity Investment Program

890           The license fee program helps productions pay broadcasting fees.

              The Equity Investment Program is up to 49% ownership of the production (i.e. undivided
               co-ownership of copyright in the production). This program is administered by Telefilm

              To qualify for either program, a production has to:

                  o The project must:

                               Speak to Canadians about themselves

                               score 10 points on the CAVCO scale articulated for tax credits.21

                               Rights are owned and meaningfully developed by Canadians

                               Project is shot principally in Canada22

              The CTF has a limited budget and unlike tax credits, once it’s spent, no other productions
900            can apply.



      20
         This program is described in detail at page 290 of the casebook
      21
         Some exceptions including well-known non-canadians who must play the evil-doer!
      22
         Unless international scenes are important to the plot


      36
                                                                          ENTERTAINMENT LAW


      QUEBEC CONTENT RULES                        AND         CREDITS
                                     D O M I CI L E D   AN D   R E S I DE N CY
          Quebec content rules are based on the production being made by “domicile”. Provinces
           do not have citizenship requirements, so they do the next best thing.

          domicile” is a combination of ordinary residency with the notion of permanence. You
           acquire a domicile by ordinarily residing somewhere with the intent of making it your
           home

              o Donald Sutherland is domiciled in Quebec because he has property here and
                  intends to retire. Kylie Maroc was born in Quebec, but left and made a lot of
910               noise about disliking Quebec, so he’s not domiciled.

          Now the official tie-in is where you paid taxes the year before. If in Quebec, you’re
           domiciled there.

                                   P R OD UC T I ON     AT   D E V E L OPM E NT
          A Quebec production only counts if it was “developed” in the province, not just shot.
           While difficult to enforce, the province wants to bar productions that are created outside
           and just shot by a qualifying Quebecer.

      ONTARIO CONTENT RULES                          AND        CREDITS
          Ontarios rules are essentially the same as Quebec’s, except that they require that 85% of
           shooting be done in Ontario, regardless of how it is portrayed.

920   TREATY CO-PRODUCTIONS
          Treaty co-productions are international agreements that are “nations treatment”
           arrangements.

              o Canada does not have a treaty co-production arrangement with the United States,
                  although some people say the content rules are similar

          Telefilm Canada certifies co-productions

          Co-productions qualify for CTF disbursements and tax credits to the extent that Canadian
           productions do and the conditions of the treaty are met.
      ENTERTAINMENT LAW


                  o For example, a treaty co-production, despite having a foreign producer, will still
                      be eligible for tax credits or CTF funding.

930           Treaty co-productions are interesting for the course insofar as in a Canadian production,
               there is one “movie box”, while in a co-production, there are two movie boxes.




      38
                                                                                 ENTERTAINMENT LAW


                                     AV O I D I N G L I T I G A T I O N
              There are eight typical issues that can attract lititgation in a production. Errors and
               Omissions Insurance (“E&O”) is obtained to cover these unexpected claims (discussed
               above).

      DOCUDRAMAS & DOCUMENTARIES
              Docudramas are the fictionalization of real events. “Based on real events” is an indicator
               of a docudrama.

              Documentaries are presentations of events on film despite being provoked by the director
               (e.g. Bowling for Columbine).

940           Both types of films (docudramas in particular) attract many litigation claims because they
               run the risk of infringing the basic copyright rules, but also rules regarding rights to
               privacy, false light portrayals, and other civil rights.

      THE CLAIMS
              Following are the 8 most popular litigation issues in entertainment law practice. Some
               practical suggestions for assisting your client are:

                   o Read the script

                   o Check the American and Canadian copyright registers

                   o Check the chain of title documents for copyright

                   o Review the origins of the story and confirm releases from the original “authors”
950                      as understood under the Copyright Act, and original story subjects.23

                                        I N F R I N GE M E N T S   ON   E XP RE S S I ON
              Section 2(b) of the Canadian Charter of Rights and Freedoms and section 3 of the Quebec
               Charter protect expression in Canada.

              The first amendment of the American Constitution protect expression in the United States



      23
        This is especially troublesome for docudramas, which will merge characters or change certain
      details to shorten or make the production more palatable for audiences.
      ENTERTAINMENT LAW


                                                                     J OSEPH B URSTYN I NC . V . W I LSON
      A film portraying Catholics in what the religious order found to be blasphemous and
      immoral activity was suppressed in the United States by the censorship authority.
      Principle: Motion pictures are protected by the first amendment’s guarantee of

      freedom of expression in the United States.


960                                                                                B YERS V . E DMONDSON
      Victims of brutal murder sue production company of “Natural Born Killers”. They allege
      the murderers imitated the actions of characters in the movie, so the producer is partly
      responsible for their death. Principle: the first amendment protects this expression.
      A civil suit against the makers of the movie will not sustain the claim.

                                      D E F A M A T I ON   OR   L I B E L & S L AN DE R
               Defamation is a strict liability tort (i.e. intent does not matter) where a statement about
                (or portrayal of) a person is false, has the tendancy to injure the reputation of the person
                to whom it refers (i.e. causes feeling of hatred, contempt, ridicule, fear, dislike or
                disesteem)24 and actually damages that person’s reputation. The words must refer to the
970             person, and cause people who know the person to think they are about the person in
                question (i.e. outrageous statements about someone that no one would believe are
                exempt).

               Defenses to this action are:

                   o Truth or justification

                   o Consent

                   o Absolute privilege and qualified privilege and protected reports (i.e. statements
                       made by executive officers of government, tribunals and quasi-tribunals and
                       accurate reports of judicial and legislative proceedings)

                   o Fair comment (i.e. non-malicious statements of opinion made in good faith on
980                    matters of public interest)

               Defamation occurs two ways in the movie business:
      24
           Vander Zahm v. Times Publishers


      40
                                                                         ENTERTAINMENT LAW


                 o Through (mis)portrayal of a real person in a film by an actor

                 o Through unintentional similarities between a fictional character and the claimaint
                     (name, job, involvement in real events)

             Satire and parody are exempt from defamation, where the claims made therein are so
              preposterous that reasonable people would not believe the assertions claimed therein.

                 o Test: does the judge get the joke?

                                                                               L OCKHEED V . CBC
       Plaintiff alleged CBC defamed him. CBC claimed it was engaging in fair comment.
 990   Disclaimer also made clear that events were fictionalized. Principle: public officials
       can sue in libel for representation of activities unrelated to their official duties .


                                          A M E RI CA N D E F AM A T I O N
             American defamation has some exceptions that we don’t have in Canada.

                                                                  N EW Y ORK T IMES V . S ULLIVAN
       The New York Times published an article that damaged the reputation of a public
       official. New York Times pleaded the first amendment. Principle: in the interest of
       preserving the fundamental value of “government for the people, by the people”,

       public debate should be “uninhibited, robust and wide-open”. Vehement, caustic and

       even sharp attacks on government and public officials is allowed.


1000                                                                     G ERTZ V . R OBERT W ELCH
       Defendant made defamatory remarks about a popular actor named Robert Welch.
       Actor sued for defamation. Defendant exercised defence pursuant to Sullivan decision.
       Principle: There are two types of public figures (1) all purpose public figures and (2)

       vortex public figures, whose notoriety is tied to a particular, popular event. They can

       respond effectively to defamatory statements through their notoriety .


                                                               F ITZGERALD V . P ENTHOUSE L TD .
       Defendant to allegation in defendant’s magazine claimed plaintiff was a “vortex public
       figure”. Principle: a “Vortex” or “Limited Purpose Public Figure” (1) has access to
       ENTERTAINMENT LAW


       channels of effective communication (2) voluntarily assumed the role of special

1010   prominence in a public controversy (3) sought to influence resolution of or outcome

       of controversy and where (4) the controversy existed prior to the defamatory

       statements and (5) the plaintiff had public figure status at the time of the

       defamation.


                                              I NV AS I O N   OF   P RI V A CY
               Invasion of privacy is divided among 4 torts:

                   o Unreasonable intrusion on seclusion (i.e. invasion of private, physical space)

                   o Disclosure of objectively private facts (i.e. what society feels is off limits, like
                       sexual conduct)

                   o False light (see below)

1020               o Appropriation of a person’s name, likeness or personality for another’s benefit
                       (i.e. right to publicity – see below).

               In the first two instances, invasion of privacy results from:

                   o Public disclosure of;

                   o Private facts which;

                   o Would be offensive to reasonable people

                   o And is not newsworthy

               Real names, phone numbers and addresses should not appear in a production (i.e.
                invasion of seclusion)

               Disguising characters is a possible solution to those people who will not sign releases to
1030            their image or character in a production.

               Defense: Facts that while private, are newsworthy are allowed. Court shows extra
                scrutiny over:

                   o Immoral behaviour

                   o Sexual behaviour



       42
                                                                             ENTERTAINMENT LAW


                                                        T AMARA H OOD V . N ATIONAL E NQUIRER
       Tamara Hood is the mother of Eddie Murphy’s child. The couple did not want this
       information disclosed. Eddie Murphy paid expenses for Ms. Hood. National Enquirer
       took photos and published an article about the birth of their son without their permission.
       Principle: details of private expenses are not newsworthy when the plantiffs desire

1040   to be let alone, although the fact a celebrity supports the parent of their child may

       be.


                                                     P OLYDOROS V . T WENTIETH C ENTURY F OX
       Plaintiff, a non-celebrity, claims studio produced a film that appropriated his name and
       likeness and invaded his right to privacy. Plaintiff new an executive personally and
       showed photos that resembled a character in the film. Producers allege the film was
       fictional, so could not be attributed to the plaintiff.          Principle: despite likeness of

       character, a lack of notoriety and no other link between the events of the film and

       the biography of the plaintiff results in denial of the claim .


                                                                                     M ILLER V . NBC
1050   Princple: a photo taken of a couple by another attendee at a dinner party inside the

       house was held not to be an invasion of privacy.


                                             F AL S E L I G HT P RI V A CY
                The same conditions for defamation except that the claim is neutral or positive. The
                 “injury” to reputation is embarrassment or the duty to have to set people straight about
                 the misrepresented fact, despite being objectively complimentary or innocuous.

                                                               E XAMPLE : B ASEBALL W AR H ERO ?
       A documentary of baseball hero made the erroneous claim that its subject was a war
       hero. While this claim generally elevated the audience’s perception of the baseball
       player, the latter was embarrassed when he had to explain that he was never a war
1060   hero. Principle: most people probably let a false but positive claim slide unless it
       reaches widespread popularity that the subject feels the need to correct .
       ENTERTAINMENT LAW


                                 C O P Y R I G HT & T RA D E M AR K I N FRI N GE M E NT
               Along with the concerns over copyright ownership in the screenplay and film described
                above, we must also look for:

                   o Copyright infringement of similar works that the producer, director or author had
                       access to prior to filming. This is probably the most popular and expensive claim
                       to defend against.

                   o Copyright infringements in the screenplay (e.g. a character sings “Happy
                       Birthday”, which is copyrighted song)

1070               o The film also must be careful not to show company logos or products without
                       releases, which might be copyrighted and might constitute trademark
                       infringement

                   o Posters and other images within the film used as props are a source of copyright
                       infringement. Release may have been obtained by the poster-maker, but not from
                       the original photgrapher.

                   o Copyright in music often demands releases from the lyricist and the songwriter,
                       among other people

                   o Film clips and clips appearing on screens within the film demand releases

                   o Moral rights must also be waived, despite assignment or release of the copyright

1080                                I M PL I E D - I N -F ACT C ON T R ACT C L AI M S
               Use of an idea without compensation pursuant to an implied agreement.

               Not to be misconstrued with copyright infringement, this occurs where a contributor
                (usually a writer) shares an idea (as little as a line or two of script) with the
                (mis)understanding that they will be compensated for it if it is used in the production.

               The plaintiff must demonstrate the producer knew the idea was offered on the condition
                that compensation would flow if the submission was used (i.e. accepted).

                                                R I G HT   OF   PUBLICIT Y
               Also known as the “right to one’s image”.



       44
                                                                              ENTERTAINMENT LAW


             In Quebec, ss. 35 and 36 of the CCQ protect citizens’ name, image, likeness and voice,
1090          for any purpose other than news from publication without permission.

             Everyone has the right to control the use of one’s image in association with products and
              events.     Infringement can occur where an individual is recognizable and they can
              demonstrate injury as a result of their publicity.

             Most commonly associated with unlicensed endorsement of products form celebrities.

                                                                                A UBRY V . V ICE V ERSA
       A girl is photographed sitting on a stoop and published in small run, local, artistic
       publication. The photographer never obtained a release for use of her image. She
       argued she suffered ridicule by her peers as a result of the photo. Publication argued
       that she was in a public space. Principle: in Quebec, all citizens have a right to their
1100   image and damages flowing as a result, despite claims of public domain, especially

       where a release is easily obtainable.


                                              U N FAI R C OM PE T I T I O N
             A production that attempts to “cash-in” on the popularity of another work by associating
              itself without permission through the use of similar titles, colour schemes, plot lines, etc.

                 o A television program called “Gone with the Wind” without the movie producer’s
                        permission might give rise to a legitimate claim.

       THE RELEASE
             A release is an agreement from a participant or subject to allow the producer to use the
              material however they please

1110         The release will not exonerate a producer for any claim that is made intentionally.

				
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